<PAGE>

-----------------------------------------------------------------------------

                       INSURANCE AND INDEMNITY AGREEMENT

                                    among

                       FINANCIAL SECURITY ASSURANCE INC.,

                  ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-B,

                        ARCADIA RECEIVABLES FINANCE CORP.

                                     and

                             ARCADIA FINANCIAL LTD.


                            Dated as of June 19, 1997

-----------------------------------------------------------------------------

                   Arcadia Automobile Receivables Trust, 1997-B


         $82,000,000 5.7425% Class A-1 Automobile Receivables-Backed Notes

         $210,000,000 6.10% Class A-2 Automobile Receivables-Backed Notes

         $170,000,000 6.30% Class A-3 Automobile Receivables-Backed Notes

         $150,000,000 6.50% Class A-4 Automobile Receivables-Backed Notes

         $163,000,000 6.70% Class A-5 Automobile Receivables-Backed Notes


-----------------------------------------------------------------------------

<PAGE>

                               TABLE OF CONTENTS

                                                                            PAGE


                                    ARTICLE I

                                   DEFINITIONS

Section 1.01.  Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .2

                                   ARTICLE II

                    REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 2.01.  Representations and Warranties of the Trust . . . . . . . . . . 7
Section 2.02.  Affirmative Covenants of the Trust . . . . . . . . . . . . . . 10
Section 2.03.  Negative Covenants of the Trust . . . . . . . . . . . . . . . .15
Section 2.04.  Representations and Warranties of Arcadia Financial and
               the Seller. . . . . . . . . . . . . . . . . . . . . . . . . .  17
Section 2.05.  Affirmative Covenants of Arcadia Financial and the Seller. . . 21
Section 2.06.  Negative Covenants of Arcadia Financial and the Seller. . . . .26
Section 2.07.  Representations and Warranties of Arcadia Financial. . . . . . 28
Section 2.08.  Affirmative Covenants of Arcadia Financial. . . . . . . . . . .30
Section 2.09.  Negative Covenants of Arcadia Financial . . . . . . . . . . . .34

                                   ARTICLE III

                 THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION

Section 3.01.  Conditions Precedent to Issuance of the Note Policy . . . . . .35
Section 3.02.  Payment of Fees and Premium. . . . . . . . . . . . . . . . . . 40
Section 3.03.  Reimbursement and Additional Payment Obligation. . . . . . . . 41
Section 3.04.  Certain Obligations Not Recourse to Arcadia Financial; 
               Recourse to Trust Property. . . . . . . . . . . . . . . . . . .42
Section 3.05.  Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.06.  Payment Procedure. . . . . . . . . . . . . . . . . . . . . . . 44
Section 3.07.  Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . 44

                                   ARTICLE IV

                        FURTHER AGREEMENTS; MISCELLANEOUS

Section 4.01.  Effective Date; Term of Agreement. . . . . . . . . . . . . . . 45
Section 4.02.  Further Assurances and Corrective Instruments. . . . . . . . . 45
Section 4.03.  Obligations Absolute. . . . . . . . . . . . . . . . . . . . . .45
Section 4.04.  Assignments; Reinsurance; Third-Party Rights. . . . . . . . . .46
Section 4.05.  Liability of Financial Security. . . . . . . . . . . . . . . . 47

                                    ARTICLE V

                           EVENTS OF DEFAULT; REMEDIES

Section 5.01.  Events of Default. . . . . . . . . . . . . . . . . . . . . . . 48
Section 5.02.  Remedies; Waivers. . . . . . . . . . . . . . . . . . . . . . . 50

                                   ARTICLE VI

<PAGE>

                                  MISCELLANEOUS

Section 6.01.  Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . .51
Section 6.02.  Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .51
Section 6.03.  Severability. . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.04.  Governing Law. . . . . . . . . . . . . . . . . . . . . . . . .52
Section 6.05.  Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . .52
Section 6.06.  Consent of Financial Security. . . . . . . . . . . . . . . . .53
Section 6.07.  Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.08.  Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.09.  Trial by Jury Waived. . . . . . . . . . . . . . . . . . . . . 54
Section 6.10.  Limited Liability. . . . . . . . . . . . . . . . . . . . . . .54
Section 6.11.  Limited Liability of Mellon Bank (DE), National Association. .54
Section 6.12.  Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 54

Schedule I 


                                      ii

<PAGE>

                        INSURANCE AND INDEMNITY AGREEMENT


          INSURANCE AND INDEMNITY AGREEMENT dated as of June 19, 1997, among 
FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company 
("Financial Security"), ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1997-B, a 
Delaware business trust (the "Trust"), ARCADIA RECEIVABLES FINANCE CORP., a 
Delaware corporation (the "Seller"), and ARCADIA FINANCIAL LTD., a Minnesota 
corporation (when referred to individually hereunder, "Arcadia Financial", 
when referred to as servicer under the Sale and Servicing Agreement referred 
to below, the "Servicer").

                             INTRODUCTORY STATEMENTS


     1.   The Seller is the owner of the Receivables.  The Seller proposes to 
sell to the Trust all of its right, title and interest in and to the 
Receivables and certain other property pursuant to the Sale and Servicing 
Agreement.  The Trust will issue Notes pursuant to the Indenture.

     2.   Each Note will be secured by the Indenture Property.  The Trust has 
requested that Financial Security issue a financial guaranty insurance policy 
guarantying respectively certain distributions of interest and principal on 
the Notes on each Distribution Date (including any such distributions 
subsequently avoided as a preference under applicable bankruptcy law) upon 
the terms, and subject to the conditions, provided herein.

     3.   Arcadia Financial and the Seller have previously entered into and 
may in the future enter into one or more pooling and servicing agreements or 
sale and servicing agreements with a trust and Seller has previously entered 
into a Repurchase Agreement dated as of December 3, 1996 among the Seller and 
Arcadia Receivables Conduit Corp., in each case, pursuant to which the Seller 
sold or will sell all of its right, title and interest in and to receivables 
and the other trust property and in connection therewith Financial Security 
has and may in the future issue additional policies with respect to certain 
guaranteed distributions on the corresponding certificates, the corresponding 
notes or both.

     4.   The parties hereto desire to specify the conditions precedent to 
the issuance of the Note Policy by Financial Security, the payment of premium 
in respect of the Note Policy, the indemnity and reimbursement to be provided 
to Financial Security in respect of amounts paid by Financial Security under 
the Note Policy or otherwise and certain other matters.

<PAGE>

          In consideration of the premises and of the agreements herein 
contained, Financial Security, the Trust, Arcadia Financial, individually and 
as Servicer, and the Seller hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

          Section 1.01. DEFINITIONS.  All words and phrases defined in the 
Trust Agreement, the Sale and Servicing Agreement or in the Spread Account 
Agreement shall have the same meanings in this Agreement.  Unless otherwise 
specified, if a word or phrase defined in the Trust Agreement, the Sale and 
Servicing Agreement or in the Spread Account Agreement can be applied with 
respect to one or more Series, such a word or phrase shall be used herein as 
applied to Series 1997-B.  In addition, the following words and phrases shall 
have the following respective meanings:  

          "ACCUMULATED FUNDING DEFICIENCY" shall have the meaning provided in
Section 412 of the Code and Section 302 of ERISA, whether or not waived.

          "AGREEMENT"  means this Insurance and Indemnity Agreement, as the same
may be amended, modified or supplemented from time to time.

          "AUTHORIZED OFFICER"  means, with respect to a corporation, the
president, the chief financial officer or any vice president.

          "CODE" means the Internal Revenue Code of 1986, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.

          "COMMISSION" means the Securities and Exchange Commission.

          "COMMONLY CONTROLLED ENTITY" means with respect to the Trust, the
Seller or Arcadia Financial, as the case may be, each entity, whether or not
incorporated, which is affiliated with the Trust, the Seller or Arcadia
Financial, as the case may be, pursuant to Section 414(b), (c), (m) or (o) of
the Code.

          "DEFAULT" means any event which results, or which with the giving of
notice or the lapse of time or both would result, in an Event of Default.

          "ERISA" means the Employee Retirement Income Security Act of 1974,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

          "EVENT OF DEFAULT" means any event of default specified in Section
5.01 of this Agreement.


                                      2

<PAGE>

          "EXPIRATION DATE" means, with respect to the Note Policy, the final
date of the Term of such Note Policy, as specified therein.

          "FINANCIAL SECURITY" means Financial Security Assurance Inc., a New
York stock insurance company, its successors and assigns.

          "FINANCIAL STATEMENTS" means with respect to Arcadia Financial the
audited consolidated balance sheets as of December 31, 1996, December 31, 1995
and December 31, 1994 and the related audited consolidated statements of income,
retained earnings and cash flows for the 12-month periods then ended and the
notes thereto and the unaudited balance sheets as of March 31, 1997 and March
31, 1996 and the statements of income, retained earnings and cash flows for the
fiscal quarter then ended. 

          "FISCAL AGENT" means the Fiscal Agent, if any, designated pursuant to
the terms of the Note Policy.

          "INDENTURE COLLATERAL AGENT" means initially, The Chase Manhattan
Bank, in its capacity as collateral agent on behalf of Financial Security and
the Indenture Trustee on behalf of the Noteholders pursuant to the Indenture,
its successor in interest and any successor Indenture Collateral Agent under the
Indenture.

          "INDENTURE PROPERTY" means the property pledged to the Indenture
Collateral Agent on behalf of Financial Security and the Indenture Trustee on
behalf of the Noteholders pursuant to the Indenture.

          "INSURANCE AGREEMENT INDENTURE CROSS DEFAULT"  means an Event of
Default specified in clause (a), (f), (g), (h) or (i) of Section 5.01.

          "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

          "IRS" means the Internal Revenue Service.

          "LATE PAYMENT RATE" means the greater of (i) a per annum rate equal to
3 percent in excess of Financial Security's cost of funds, determined on a
monthly basis, or (ii) a per annum rate equal to 3 percent in excess of the
arithmetic average of the prime or base lending rates publicly announced by The
Chase Manhattan Bank, N.A. (New York, New York) and Citibank, N.A. (New York,
New York), as in effect on the last day of the month for which interest is being
computed, but, in either case, in no event greater than the maximum rate
permitted by law.

          "LIEN" means, as applied to the property or assets (or the income or
profits therefrom) of any Person, in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise:  (a) any mortgage, lien, pledge, attachment, charge, lease,
conditional sale or other title retention agreement, or other security 


                                       3

<PAGE>

interest or encumbrance of any kind; or (b) any arrangement, express or 
implied, under which such property or assets are transferred, sequestered or 
otherwise identified for the purpose of subjecting or making available the 
same for the payment of debt or performance of any other obligation in 
priority to the payment of the general, unsecured creditors of such Person.

          "MATERIAL ADVERSE CHANGE" means, in respect of any Person, a material
adverse change in (i) the business, financial condition, results of operations,
or properties of such Person and its Subsidiaries taken as a whole, (ii) the
ability of such Person to perform its obligations under any of the Transaction
Documents to which it is a party or (iii) the ability of Financial Security or
the Trust to realize the benefits or security afforded under the Transaction
Documents.

          "MULTIEMPLOYER PLAN" means a multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) in respect of which a Commonly Controlled Entity
makes contributions or has liability.

          "NOTE POLICY" means the financial guaranty insurance policy, including
any endorsements thereto, issued by Financial Security with respect to the
Notes, substantially in the form attached as Exhibit A hereto.

          "NOTICE OF CLAIM" means the Notice of Claim and Certificate in the
form attached as Exhibit A to Endorsement No. 1 to the Note Policy.

          "OTHER TRUST PROPERTY" means the property conveyed by the Seller to
the Trust pursuant to the Sale and Servicing Agreement and any Subsequent
Transfer Agreement.

          "PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency, corporation or instrumentality of the United States to which the duties
and powers of the Pension Benefit Guaranty Corporation are transferred.

          "PLAN" means any pension plan (other than a Multiemployer Plan)
covered by Title IV of ERISA, which is maintained by a Commonly Controlled
Entity or in respect of which a Commonly Controlled Entity has liability.

          "PORTFOLIO PERFORMANCE EVENT OF DEFAULT" means an Event of Default
specified in clause (j), (k), or (l) of Section 5.01.

          "PREMIUM" means the premium payable in accordance with Section 3.02 of
this Agreement.

          "PREMIUM LETTER" means the side letter between Financial Security and
Arcadia Financial dated the date hereof in respect of the premium payable by
Arcadia Financial in consideration of the issuance of the Note Policy.

          "PREMIUM SUPPLEMENT" means a non-refundable premium, in addition to
the premium payable in accordance with Section 3.02 of this Agreement, payable
by Arcadia


                                       4

<PAGE>

Financial to Financial Security in monthly installments commencing on
the first Distribution Date following the Premium Supplement Commencement Date
and on each Distribution Date thereafter, payable in accordance with the terms
of the Premium Letter.

          "PREMIUM SUPPLEMENT COMMENCEMENT DATE" means the date of occurrence of
an Event of Default in respect of which the Premium Supplement shall have been
declared due and payable in accordance with Section 5.02 of this Agreement.

          "PREVIOUS SERIES TRANSACTION DOCUMENTS" means the transaction
documents as defined in each of the insurance and indemnity agreements related
to Olympic Automobile Receivables Trust, 1993-A, Olympic Automobile Receivables
Trust, 1993-B, Olympic Automobile Receivables Trust, 1993-C, and Olympic
Automobile Receivables Trust, 1993-D, Olympic Automobile Receivables Trust,
1994-A, Olympic Automobile Receivables Trust, 1994-B, Olympic Automobile
Receivables Trust, 1995-A, Olympic Automobile Receivables Trust, 1995-B, Olympic
Automobile Receivables Trust, 1995-C, Olympic Automobile Receivables Trust,
1995-D, Olympic Automobile Receivables Trust, 1995-E, Olympic Automobile
Receivables Trust, 1996-A, Olympic Automobile Receivables Trust, 1996-B, Olympic
Automobile Receivables Trust, 1996-C, Olympic Automobile Receivables Trust,
1996-D, Olympic Automobile Receivables Trust, 1997-A and the Warehousing Notes.

          "PROSPECTUS" has the meaning set forth in Section 2.04(o) of this
Agreement.

          "RELATED DOCUMENTS" means the Transaction Documents except for the
Sale and Servicing Agreement.

          "REGISTRATION STATEMENT" has the meaning set forth in Section 2.04(o)
of this Agreement.

          "REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.

          "RESTRICTIONS ON TRANSFERABILITY" means, as applied to the property or
assets (or the income or profits therefrom) of any Person, in each case whether
the same is consensual or nonconsensual or arises by contract, operation of law,
legal process or otherwise, any material condition to, or restriction on, the
ability of such Person or any transferee therefrom to sell, assign, transfer or
otherwise liquidate such property or assets in a commercially reasonable time
and manner or which would otherwise materially deprive such Person or any
transferee therefrom of the benefits of ownership of such property or assets.

          "SALE AND SERVICING AGREEMENT" means the Sale and Servicing Agreement
dated as of June 1, 1997 among the Seller, Arcadia Financial, in its individual
capacity and as Servicer, the Back-up Servicer and the Trust pursuant to which
the Initial Receivables are to be sold, serviced and administered, as the same
may be amended from time to time.

          "SECURITIES ACT" means the Securities Act of 1933, including, unless
the context otherwise requires, the rules and regulations thereunder, as amended
from time to time.


                                       5

<PAGE>

          "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

          "SENIOR NOTE INDENTURE" means the Indenture dated as of March 12, 1997
between Olympic Financial Ltd. ("OFL") and Norwest Bank Minnesota, National
Association, as amended or supplemented, relating to OFL's $300,000,000 11 1/2%
Senior Notes due 2007.

          "SERIES 1997-B" means the Series of Notes issued on the date hereof
pursuant to the Trust Agreement and the Indenture, respectively.

          "SERIES OF NOTES" or "SERIES" means Series 1997-B or any, or as the
context may require, all, additional series of notes issued as described in
paragraph 3 of the Introductory Statements hereto.

          "SERVICER TERMINATION SIDE LETTER" means the letter from Financial
Security to the Servicer dated as of June 19, 1997, with regard to the renewal
of the term of the Servicer.

          "SPREAD ACCOUNT AGREEMENT" means the Spread Account Agreement, dated
as of March 25, 1993, as amended and restated as of June 1, 1997 as supplemented
in accordance with the terms thereof, among Arcadia Financial, the Seller,
Financial Security, the Indenture Trustee and the Collateral Agent.

          "STOCK PLEDGE AGREEMENT" means the Third Amended and Restated Stock
Pledge Agreement, as amended and restated, dated as of December 3, 1996, among
Financial Security, Arcadia Financial, and the Collateral Agent, as the same may
be amended from time to time.

          "SUBSIDIARY" means, with respect to any Person, any corporation of
which a majority of the outstanding shares of capital stock having ordinary
voting power for the election of directors is at the time owned by such Person
directly or through one or more Subsidiaries.

          "TERM OF THE NOTE POLICY" means, with respect to the Note Policy, the
meaning provided therein. 

          "TERM OF THIS AGREEMENT" shall be determined as provided in Section
4.01 of this Agreement.

          "TRANSACTION" means the transactions contemplated by the Transaction
Documents, including the transactions described in the Registration Statement.

          "TRANSACTION DOCUMENTS" means this Agreement, the Sale and Servicing
Agreement, the Trust Agreement, the Certificate of Trust, the Indenture, the
Underwriting Agreement, the Purchase Agreement, the Premium Letter, the Stock
Pledge Agreement, the Lockbox Agreement, the Depository Agreements, the
Custodian Agreement, the Servicer Termination Side Letter, the Spread Account
Agreement and the Administration Agreement.


                                       6

<PAGE>

          "TRUST AGREEMENT" means the Trust Agreement, dated as of June 1, 1997,
among the Seller, Financial Security and Mellon Bank (DE), National Association,
as Owner Trustee.

          "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.

          "UNDERFUNDED PLAN" means any Plan that has an Underfunding.

          "UNDERFUNDING" means, with respect to any Plan, the excess, if any, of
(a) the present value of all benefits under the Plan (based on the assumptions
used to fund the Plan pursuant to Section 412 of the Code) as of the most recent
valuation date over (b) the fair market value of the assets of such Plan as of
such valuation date.

          "UNDERWRITERS" means J.P. Morgan Securities Inc., BancAmerica
Securities, Inc., Bear, Stearns & Co. Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation.

          "UNDERWRITING AGREEMENT" means the Pricing Agreement, dated June 19,
1997, among Arcadia Financial and the Seller and the Underwriters.

          "WAREHOUSING NOTES" means the Notes issued pursuant to the Warehousing
Series Indenture dated as of December 3, 1996 between Arcadia Receivables
Conduit Corp., as the issuer, and Norwest Bank Minnesota, National Association,
as trustee.

                                  ARTICLE II

                    REPRESENTATIONS, WARRANTIES AND COVENANTS

          Section 2.01. REPRESENTATIONS AND WARRANTIES OF THE TRUST.  The Trust
represents, warrants and covenants, as of the date hereof and as of the Closing
Date, as follows:

          a.        DUE ORGANIZATION AND QUALIFICATION.  The Trust is  duly
formed and validly existing as a Delaware statutory business trust and is in
good standing under the laws of the State of Delaware, with power and authority
to own its properties and to conduct its business.  The Trust is duly qualified
to do business, is in good standing and has obtained all necessary licenses,
permits, charters, registrations and approvals (together, "approvals") necessary
for the conduct of its business as described in the Prospectus and the
performance of its obligations under the Transaction Documents, in each
jurisdiction in which the failure to be so qualified or to obtain such approvals
would render the Receivables in such jurisdiction or any Transaction Document
unenforceable in any respect or would otherwise have a material adverse effect
upon the Transaction.

          b.        POWER AND AUTHORITY.  The Trust has all necessary trust
power and authority to conduct its business as described in the Prospectus, to
execute, deliver and perform its obligations under this Agreement and each other
Transaction Document to which  the Trust 


                                       7

<PAGE>

is a party and to carry out the terms of each such agreement, and has full 
power and authority to issue the Notes and pledge and assign its assets 
pursuant to the Indenture and has duly authorized the issuance of the Notes 
and the assignment of its assets by all necessary trust proceedings. 

         (c)     DUE AUTHORIZATION.  The execution, delivery and performance
of this Agreement and each other Transaction Document to which the Trust is a
party has been duly authorized by all necessary action on the part of the Trust
and does not require any additional approvals or consents or other action by or
any notice to or filing with any Person by or on behalf of the Trust, including,
without limitation, any governmental entity. 

         (d)     NONCONTRAVENTION.  Neither the execution and delivery of
this Agreement and each other Transaction Document to which the Trust is a
party, the consummation of the Transaction nor the satisfaction of the terms and
conditions of this Agreement and each other Transaction Document to which the
Trust is a party,
   
            (i)          conflicts with or results in any breach or violation of
     any provision of the Certificate of Trust or the Trust Agreement or any
     law, rule, regulation, order, writ, judgment, injunction, decree,
     determination or award currently in effect having applicability to the
     Trust or any of its properties, including regulations issued by an
     administrative agency or other governmental authority having supervisory
     powers over the Trust, 

            (ii)         constitutes a default by the Trust under or a breach of
     any provision of any loan agreement, mortgage, indenture or other agreement
     or instrument to which the Trust is a party or by which it or any of its
     properties is or may be bound or affected, or

            (iii)        results in or requires the creation of any Lien upon or
     in respect of any of the Trust's assets except as otherwise expressly
     contemplated by the Transaction Documents.

         (e)     PENDING LITIGATION OR OTHER PROCEEDING.  There is no action,
proceeding or investigation pending, or, to the Trust's best knowledge,
threatened, before any court, regulatory body, administrative agency, arbitrator
or governmental agency or instrumentality having jurisdiction over the Trust or
its properties:  (A) asserting the invalidity of this Agreement or any other
Transaction Document to which the Trust is a party, (B) seeking to prevent the
issuance the Notes or the consummation of the Transaction, (C) seeking any
determination or ruling that might materially and adversely affect the validity
or enforceability of this Agreement or any other Transaction Document to which
the Trust is a party, (D) which might result in a Material Adverse Change with
respect to the Trust or (E) which might adversely affect the federal or state
tax attributes of the Notes or the Trust.

         (f)     VALID AND BINDING OBLIGATIONS.  Each of the Transaction
Documents to which the Trust is a party, when executed and delivered by the
Trust, and assuming due authorization, execution and delivery by the other
parties thereto, will constitute the legal, valid 


                                     8


<PAGE>

and binding obligation of the Trust enforceable in accordance with its terms, 
except as such enforceability may be limited by bankruptcy, insolvency, 
reorganization, moratorium or other similar laws affecting creditors' rights 
generally and general equitable principles.  The Notes, when executed, 
authenticated and delivered in accordance with the Indenture, will be 
entitled to the benefits of the Indenture and will constitute legal, valid 
and binding obligations of the Trust, enforceable in accordance with their 
terms.

         (g)     NO CONSENTS.  No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any consent,
approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution, delivery
and performance by the Trust of this Agreement or of any other Transaction
Document to which the Trust is a party, except (in each case) such as have been
obtained and are in full force and effect.

         (h)     COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy
employed or proposed to be employed by the Trust in the conduct of its business
violates any law, regulation, judgment, agreement, order or decree applicable to
the Trust which, if enforced, would result in a Material Adverse Change with
respect to the Trust.

         (i)     ERISA.  The Trust does not maintain or contribute to, or
have any obligation to maintain or contribute to, any Plan.  The Trust is not
subject to any of the provisions of ERISA.

         (j)     COLLATERAL.  On the Closing Date, and on each Subsequent
Transfer Date, the Trust will have good and marketable title to each item of
Other Trust Property conveyed on such date and will own each such item free and
clear of any Lien (other than Liens contemplated under the Indenture) or any
equity or participation interest of any other Person.

         (k)     PERFECTION OF LIENS AND SECURITY INTEREST.  On the Closing
Date, the Lien and security interest in favor of the Indenture Collateral Agent
with respect to Indenture Property will be perfected by the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or filing is
necessary for the perfection thereof, the delivery of the Receivable Files for
the Receivables to the Custodian, and the establishment of the Collection
Account, the Subcollection Account, the Lockbox Account, the Pre-Funding
Account, the Reserve Account and the Note Distribution Account in accordance
with the provisions of the Transaction Documents, and no other filings in any
jurisdiction or any other actions (except as expressly provided herein) are
necessary to perfect the Collateral Agent's Lien on and security interest in the
Collateral as against any third parties.

         (l)     SECURITY INTEREST IN FUNDS AND INVESTMENTS.  Assuming the
retention of funds in the Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and perfected, first priority security
interest in favor of the Collateral Agent on behalf of the Indenture Trustee (on
behalf of the Noteholders) and Financial Security.


                                     9


<PAGE>

         (m)     COMPLIANCE WITH INVESTMENT COMPANY ACT.  The Trust is not
required to be registered as an "investment company" under the Investment
Company Act.

         (n)     INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. 
The representations and warranties of the Trust set forth in each Transaction
Document are (in each case) true and correct as if set forth herein.  

         (o)     SPECIAL PURPOSE ENTITY.

            (i)       The capital of the Trust is adequate for the business
     and undertakings of the Trust.

            (ii)      Except as contemplated by the Transaction Documents,
     the Trust is not engaged in any business transactions with Arcadia
     Financial, the Seller or any Affiliate of either of them.

            (iii)     The Trust's funds and assets are not, and will not be,
     commingled with the funds of any other Person, except as provided in the
     Transaction Documents.

         (p)     SOLVENCY; FRAUDULENT CONVEYANCE.  The Trust is solvent and
will not be rendered insolvent by the Transaction or by the performance of its
obligations under the Transaction Documents and, after giving effect to such
Transaction, the Trust will not be left with an unreasonably small amount of
capital with which to engage in its business.  The Trust does not intend to
incur, or believe that it has incurred, debts beyond its ability to pay such
debts as they mature.  The Trust does not contemplate the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar official
in respect of the Trust or any of its assets.  

         Section 2.02. AFFIRMATIVE COVENANTS OF THE TRUST.  The Trust hereby 
agrees that during the Term of the Agreement, unless Financial Security shall 
otherwise expressly consent in writing:

         (a)     COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  The Trust
will comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it.  The Trust will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall have occurred and be continuing) Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such amendment
would not adversely affect the interests of Financial Security.  The Trust shall
not take any action or fail to take any action that would interfere with the
enforcement of any rights under this Agreement or the other Transaction
Documents.

         (b)     FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER 
INFORMATION.  The Trust shall keep or cause to be kept in reasonable detail 
books and records of account of the Trust's 

                                     10


<PAGE>

assets and business, which shall be furnished to Financial Security upon 
request.  The Trust shall furnish to Financial Security, simultaneously with 
the delivery of such documents to the Indenture Trustee or the Noteholders, 
as the case may be, copies of all reports, certificates, statements, 
financial statements or notices furnished to the Indenture Trustee or the 
Noteholders, as the case may be, pursuant to the Transaction Documents.  

            (i)     ANNUAL FINANCIAL STATEMENTS.  As soon as available, and in
     any event within 90 days after the close of each fiscal year of the Trust,
     the audited balance sheets of the Trust as of the end of such fiscal year
     and the audited statements of income, changes in equityowners' equity and
     cash flows of the Trust for such fiscal year, all in reasonable detail and
     stating in comparative form the respective figures for the corresponding
     date and period in the preceding fiscal year, prepared in accordance with
     generally accepted accounting principles, consistently applied, and
     accompanied by the certificate of the Trust's independent accountants (who
     shall be acceptable to Financial Security) and by the certificate specified
     in Section 2.02(c) hereof.

           (ii)     QUARTERLY FINANCIAL STATEMENTS.  As soon as available, and
     in any event within 45 days after the close of each of the first three
     quarters of each fiscal year of the Trust, the unaudited balance sheets of
     the Trust as of the end of such quarter and the unaudited statements of
     income, changes in equityowners' equity and cash flows of the Trust for the
     portion of the fiscal year then ended, all in reasonable detail and stating
     in comparative form the respective figures for the corresponding date and
     period in the preceding fiscal year, prepared in accordance with generally
     accepted accounting principles consistently applied (subject to normal
     year-end adjustments), and accompanied by the certificate specified in
     Section 2.02(c) hereof.

          (iii)     ACCOUNTANTS' REPORTS.  Promptly upon receipt thereof, copies
     of any reports or comment letters submitted to the Trust by its independent
     accountants in connection with any examination of the financial statements
     of the Trust. 

           (iv)     CERTAIN INFORMATION.  Not less than ten days prior to the
     date of filing with the IRS of any tax return or amendment thereto, copies
     of the proposed form of such return or amendment and, promptly after the
     filing or sending thereof, (i) copies of each tax return and amendment
     thereto that the Trust files with the IRS and (ii) copies of all financial 
     statements, reports, and registration statements which the Trust files
     with, or delivers to, any federal government agency, authority or body
     which supervises the issuance of securities by the Trust.

            (v)     OTHER INFORMATION.  Promptly upon the request of Financial
     Security, copies of all schedules, financial statements or other similar
     reports delivered to or by the Trust pursuant to the terms of this
     Agreement and the other Transaction Documents and such other data as
     Financial Security may reasonably request.        

         (c)     COMPLIANCE CERTIFICATE. The Trust shall deliver to Financial
Security and, upon request, any Noteholder, concurrently with the delivery of
the financial statements required 


                                     11


<PAGE>

pursuant to Section 2.02 (b)(i) and (ii) hereof, a certificate signed by an 
Authorized Officer of the Administrator stating that:

            (i)     a review of the Trust's performance under the Transaction
     Documents during such period has been made under such officer's
     supervision;

           (ii)     to the best of such individual's knowledge following
     reasonable inquiry, no Default or Event of Default has occurred and is
     continuing or, if a Default or Event of Default has occurred and is
     continuing, specifying the nature thereof and, if the Trust has a right to
     cure pursuant to Section 5.01, stating in reasonable detail the steps, if
     any, being taken by the Trust to cure such Default or Event of Default or
     to otherwise comply with the terms of the agreement or agreements to which
     such Default or Event of Default relates; and

          (iii)     the financial reports submitted in accordance with Section
     2.02(b)(i) or (ii) hereof, as applicable, are complete and correct in all
     material respects and present fairly the financial condition and results of
     operations of the Trust as of the dates and for the periods indicated, in
     accordance with generally accepted accounting principles consistently
     applied (subject as to interim statements to normal year-end adjustments).

         (d)     ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND 
ACCOUNTANTS.  The Trust shall, upon the request of Financial Security, permit 
Financial Security or its authorized agents (i) to inspect the books and 
records of the Trust as they may relate to the Notes, the Receivables and the 
Other Trust Property, the obligations of the Trust under the Transaction 
Documents, the Trust's business and the Transaction and (ii) to discuss the 
affairs, finances and accounts of the Trust with any of its personnel and 
representatives, including its Independent Accountants.  Such inspections and 
discussions shall be conducted during normal business hours and shall not 
unreasonably disrupt the business of the Trust.  The books and records of the 
Trust will be maintained at the address of the Trust designated herein for 
receipt of notices, unless the Trust shall otherwise advise the parties 
hereto in writing.

         (e)     NOTICE OF MATERIAL EVENTS.  The Trust shall promptly inform
Financial Security in writing of the occurrence of any of the following:

            (i)       the submission of any claim or the initiation of any
     legal process, litigation or administrative or judicial investigation
     against the Trust involving potential damages or penalties in an uninsured
     amount in excess of $100,000 in any one instance or $500,000 in the
     aggregate;

            (ii)      any change in the location of Trust's principal office
     or any change in the location of the Trust's books and records;

            (iii)     the occurrence of any Default or Event of Default;

            (iv)      the commencement or threat of any rule making or
     disciplinary proceedings or any proceedings instituted by or against the
     Trust in any federal, state or 


                                     12


<PAGE>

     local court or before any governmental body or agency, or before any 
     arbitration board, or the promulgation of any proceeding or any proposed 
     or final rule which, if adversely determined,would result in a Material 
     Adverse Change with respect to the Trust;

            (v)       the commencement of any proceedings by or against the
     Trust under any applicable bankruptcy, reorganization, liquidation,
     rehabilitation, insolvency or other similar law now or hereafter in effect
     or of any proceeding in which a receiver, liquidator, conservator, trustee
     or similar official shall have been, or may be, appointed or requested for 
     the Trust or any of its assets;

            (vi)      the receipt of notice that (A) the Trust is being placed 
     under regulatory supervision, (B) any license, permit, charter, 
     registration or approval necessary for the conduct of the Trust's business
     is to be, or may be, suspended or revoked, or (C) the Trust is to cease and
     desist any practice, procedure or policy employed by the Trust in the
     conduct of its business, and such cessation may result in a Material
     Adverse Change with respect to the Trust; or

            (vii)     any other event, circumstance or condition that has 
     resulted, or has a material possibility of resulting, in a Material Adverse
     Change in respect of the Trust.

         (f)     FURTHER ASSURANCES.  The Trust will file all necessary
financing statements, assignments or other instruments, and any amendments or
continuation statements relating thereto, necessary to be kept and filed in such
manner and in such places as may be required by law to preserve and protect
fully the Lien and security interest in, and all rights of the Indenture
Collateral Agent with respect to the Indenture Property, under the Indenture. 
In addition, the Trust shall, upon the request of Financial Security (so long as
no Insurer Default has occurred and is continuing), from time to time, execute,
acknowledge and deliver and, if necessary, file such further instruments and
take such further action as may be reasonably necessary to effectuate the
intention, performance and provisions of the Transaction Documents to which the
Trust is a party or to protect the interest of the Indenture Collateral Agent in
the Indenture Property under the Indenture.  The Trust agrees to cooperate with
the Rating Agencies in connection with any review of the Transaction which may
be undertaken by the Rating Agencies after the date hereof.

         (g)     MAINTENANCE OF LICENSES.  The Trust shall maintain all
licenses, permits, charters and registrations which are material to the
performance by the Trust of its obligations under this Agreement and each other
Transaction Document to which the Trust is a party or by which the Trust is
bound.

         (h)     RETIREMENT OF NOTES.  The Trust shall, upon retirement of the 
Notes furnish to Financial Security a notice of such retirement, and, upon such 
retirement and the expiration of the term of the Note Policy, surrender the Note
Policy to Financial Security for cancellation.

         (i)     DISCLOSURE DOCUMENT.  Each Prospectus delivered with respect
to the Notes shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law.  In addition, each 


                                     13


<PAGE>

Prospectus delivered with respect to the Notes which include financial 
statements of Financial Security prepared in accordance with generally 
accepted accounting principles (other than a Prospectus that only 
incorporates such financial statements by reference) shall include the 
following statement immediately preceding such financial statements:

          The New York State Insurance Department recognizes only
          statutory accounting practices for determining and reporting
          the financial condition and results of operations of an
          insurance company, for determining its solvency under the
          New York Insurance Law, and for determining whether its
          financial condition warrants the payment of a dividend to
          its stockholders.  No consideration is given by the New York
          State Insurance Department to financial statements prepared
          in accordance with generally accepted accounting principles
          in making such determinations.

          (j)     SPECIAL PURPOSE ENTITY.

               (i)    The Trust shall conduct its business solely in its own
          name through its duly authorized officers or agents so as not to
          mislead others as to the identity of the entity with which those
          others are concerned, and particularly will use its best efforts to
          avoid the appearance of conducting business on behalf of Arcadia
          Financial, the Seller, or any other Affiliates thereof or that the
          assets of the Trust are available to pay the creditors of Arcadia
          Financial, the Seller, or any other Affiliates thereof.  Without
          limiting the generality of the foregoing, all oral and written
          communications, including, without limitation, letters, invoices,
          purchase orders, contracts, statements and loan applications, will be
          made solely in the name of the Trust.

               (ii)   The Trust shall maintain trust records and books of
          account separate from those of Arcadia Financial, the Seller and
          Affiliates of any of them.

               (iii)  The Trust shall obtain proper authorization from its
          equity owners of all trust action requiring such authorization, and
          copies of each such authorization and the minutes or other written
          summary of each such meeting shall be delivered to Financial Security
          within two weeks of such authorization or meeting as the case may be.

               (iv)   Although the organizational expenses of the Trust have
          been paid by Arcadia Financial, operating expenses and liabilities of
          the Trust shall be paid from its own funds.

               (v)    The annual financial statements of the Trust shall
          disclose the effects of the Trust's transactions in accordance with
          generally accepted accounting principles and shall disclose that the
          assets of the Trust are not available to pay creditors of Arcadia
          Financial, the Seller or any Affiliate of any of them.


                                     14


<PAGE>

               (vi)   The resolutions, agreements and other instruments of the
          Trust underlying the transactions described in this Agreement and in
          the other Transaction Documents shall be continuously maintained by
          the Trust as official records of the Trust separately identified and
          held apart from the records of Arcadia Financial, the Seller and each
          Affiliate of any of them.

               (vii)  The Trust shall maintain an arm's-length relationship with
          Arcadia Financial, the Seller and each Affiliate of any of them and
          will not hold itself out as being liable for the debts of any such
          Person.

               (viii) The Trust shall keep its assets and its liabilities wholly
          separate from those of all other entities, including, but not limited
          to, Arcadia Financial, the Seller and each Affiliate of any of them
          except, in each case, as contemplated by the Transaction Documents.

          (k)     CLOSING DOCUMENTS.  The Trust shall provide or cause to be
provided to Financial Security an executed original copy of each document
executed in connection with the Transaction within 10 days after the Closing
Date, except that the Seller shall cause a copy of the Trust Agreement, the Sale
and Servicing Agreement, the Series 1997-B Supplement, the Indenture, the
Administration Agreement and each Transaction Document to which Financial
Security is a party to be provided to Financial Security on the Closing Date.

          (l)     TAX MATTERS.  The Trust will take all actions necessary to
ensure that, for federal and state income tax purposes, the Trust is not taxable
as an association (or publicly traded partnership) or taxable as a corporation.

          (m)     SECURITIES LAWS.  The Trust shall comply in all material
respects with all applicable provisions of state and federal securities laws,
including blue sky laws and the Securities Act, the Exchange Act and the
Investment Company Act and all rules and regulations promulgated thereunder for
which non-compliance would result in a Material Adverse Change with respect to
the Trust.

          (n)     INCORPORATION OF COVENANTS.  The Trust agrees to comply with
each of the covenants of the Trust set forth in the Transaction Documents and
hereby incorporates such covenants by reference as if each were set forth
herein.

          Section 2.03. NEGATIVE COVENANTS OF THE TRUST.  The Trust hereby 
agrees that during the Term of this Agreement, unless Financial Security 
shall otherwise give its prior express written consent:

          (a)     WAIVER, AMENDMENTS, ETC.  The Trust shall not waive, modify,
amend, supplement or consent to any waiver, modification, amendment of or
supplement to, any of the provisions of the Certificate of Trust, the Trust
Agreement or any of the other Transaction Documents unless, if no Insurer
Default shall have occurred and be continuing, Financial Security shall have
consented thereto in writing.


                                     15
<PAGE>

          (b)     CREATION OF INDEBTEDNESS; GUARANTEES.  The Trust shall not
create, incur, assume or suffer to exist any indebtedness or assume, guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person or
causing or assisting such Person to maintain any amount of capital, except as
contemplated by the Transaction Documents.

          (c)     SUBSIDIARIES.  The Trust shall not form, or cause to be 
formed, any Subsidiaries.

          (d)     NO LIENS.  The Trust shall not, except as contemplated by 
the Transaction Documents create, incur, assume or suffer to exist any Lien 
of any nature upon or with respect to any of its properties or assets, now 
owned or hereafter acquired, or sign or file under the Uniform Commercial 
Code of any jurisdiction any financing statement that names the Trust as 
debtor, or sign any security agreement authorizing any secured party 
thereunder to file such a financing statement.

          (e)     IMPAIRMENT OF RIGHTS.  The Trust shall not take any action,
or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under the Transaction Documents
that are material to the rights, benefits or obligations of the Indenture
Trustee, the Noteholders or Financial Security.

          (f)     NO MERGERS.  The Trust shall not consolidate with or merge
into any Person or transfer all or any material amount of its assets to any
Person (except as contemplated by the Transaction Documents) or liquidate or
dissolve.

          (g)     ERISA.  The Trust shall not contribute or incur any 
obligation to contribute to, or incur any liability in respect of, any Plan 
or Multiemployer Plan.

          (h)     OTHER ACTIVITIES.  The Trust shall not:

               (i)    sell, pledge, transfer, exchange or otherwise dispose of
          any of its assets except as permitted under the Transaction Documents;
          or

               (ii)   engage in any business or activity except as contemplated
          by the Transaction Documents and as permitted by its Certificate of
          Trust.

          (i)     INSOLVENCY.  The Trust shall not commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking reorganization, arrangement, adjustment, winding-
up, liquidation, dissolution, consolidation or other relief with respect to it
or (B) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets or make a
general assignment for the benefit of its creditors.  The Trust shall not take
any action in furtherance of, or indicating the consent to, approval of, or


                                     16


<PAGE>

acquiescence in any of the acts set forth above.  The Trust shall not admit in
writing its inability to pay its debts.

          (j)     SUCCESSOR PARTIES.  The Trust will not remove or replace, or
cause to be removed or replaced, the Servicer, the Indenture Trustee, the Owner
Trustee or the Administrator.

          Section 2.04. REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL 
AND THE SELLER.  Each of Arcadia Financial and the Seller represent and 
warrant as of the date hereof and as of the Closing Date, as follows:

          (a)     DUE ORGANIZATION AND QUALIFICATION.  The Seller is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware, with power and authority to own its properties
and to conduct its business.  The Seller is duly qualified to do business, is in
good standing and has obtained all necessary licenses, permits, charters,
registrations and approvals (together, "approvals") necessary for the conduct of
its business as currently conducted and as described in the Prospectus and the
performance of its obligations under the Transaction Documents, in each
jurisdiction in which the failure to be so qualified or to obtain such approvals
would render the Receivables in such jurisdiction or any Transaction Document
unenforceable in any respect or would otherwise have a material adverse effect
upon the Transaction.

          (b)     POWER AND AUTHORITY.  The Seller has all necessary corporate
power and authority to conduct its business as currently conducted and as
described in the Prospectus, to execute, deliver and perform its obligations
under this Agreement and each other Transaction Document to which  the Seller is
a party and to carry out the terms of each such agreement, and has full power
and authority to sell and assign the Receivables and the Other Trust Property to
the Trust and has duly authorized such sale and assignment to the Trust by all
necessary corporate action.

          (c)     DUE AUTHORIZATION.  The execution, delivery and performance
of this Agreement and each other Transaction Document to which the Seller is a
party has been duly authorized by all necessary corporate action on the part of
the Seller and does not require any additional approvals or consents or other
action by or any notice to or filing with any Person by or on behalf of the
Seller, including, without limitation, any governmental entity or the Seller's
stockholder.

          (d)     NONCONTRAVENTION.  Neither the execution and delivery of
this Agreement and each other Transaction Document to which the Seller is a
party, the consummation of the Transaction nor the satisfaction of the terms and
conditions of this Agreement and each other Transaction Document to which the
Seller is a party,

            (i)       conflicts with or results in any breach or violation of
     any provision of the charter or bylaws of the Seller or any law, rule,
     regulation, order, writ, judgment, injunction, decree, determination or
     award currently in effect having applicability to the 


                                     17

<PAGE>

     Seller or any of its properties, including regulations issued by an 
     administrative agency or other governmental authority having supervisory 
     powers over the Seller,

                 (ii)      constitutes a default by the Seller under or a breach
     of any provision of any loan agreement, mortgage, indenture or other
     agreement or instrument to which the Seller is a party or by which it or
     any of its properties is or may be bound or affected, or

                (iii)     results in or requires the creation of any Lien upon 
     or in respect of any of the Seller's assets except as otherwise expressly
     contemplated by the Transaction Documents.

          (e)     PENDING LITIGATION OR OTHER PROCEEDING.  There is no 
action, proceeding or investigation pending, or, to the Seller's or Arcadia 
Financial's best knowledge, threatened, before any court, regulatory body, 
administrative agency, arbitrator or governmental agency or instrumentality 
having jurisdiction over the Seller or its properties:  (A) asserting the 
invalidity of this Agreement or any other Transaction Document to which the 
Seller is a party, (B) seeking to prevent the issuance of the Notes or the 
consummation of the Transaction, (C) seeking any determination or ruling that 
might materially and adversely affect the validity or enforceability of this 
Agreement or any other Transaction Document to which the Seller is a party, 
(D) which might result in a Material Adverse Change with respect to the 
Seller or (E) which might adversely affect the federal or state tax 
attributes of the Notes or the Trust.

          (f)     VALID AND BINDING OBLIGATIONS.  Each of the Transaction 
Documents to which the Seller is a party, when executed and delivered by the 
Seller, and assuming due authorization, execution and delivery by the other 
parties thereto, will constitute the legal, valid and binding obligation of 
the Seller enforceable in accordance with its terms, except as such 
enforceability may be limited by bankruptcy, insolvency, reorganization, 
moratorium or other similar laws affecting creditors' rights generally and 
general equitable principles.  The Notes, when executed, authenticated and 
delivered in accordance with the Indenture, will be entitled to the benefits 
of the Indenture and will constitute legal, valid and binding obligations of 
the Trust, enforceable in accordance with their terms.

          (g)     NO CONSENTS.  No consent, license, approval or 
authorization from, or registration, filing or declaration with, any 
regulatory body, administrative agency, or other governmental 
instrumentality, nor any consent, approval, waiver or notification of any 
creditor, lessor or other non-governmental person, is required in connection 
with the execution, delivery and performance by the Seller of this Agreement 
or of any other Transaction Document to which the Seller is a party, except 
(in each case) such as have been obtained and are in full force and effect.

          (h)     COMPLIANCE WITH LAW, ETC. No practice, procedure or policy 
employed or proposed to be employed by the Seller in the conduct of its 
business violates any law, regulation, judgment, agreement, order or decree 
applicable to the Seller which, if enforced, would result in a Material 
Adverse Change with respect to the Seller.

                                      18

<PAGE>

          (i)     GOOD TITLE; VALID TRANSFER; ABSENCE OF LIENS; SECURITY 
INTEREST.  Immediately prior to the sale of the Initial Receivables and 
related Other Trust Property to the Trust pursuant to the Sale and Servicing 
Agreement, the Seller was the owner of, and had good and marketable title to, 
such property free and clear of all Liens and Restrictions on 
Transferability, and had full right, corporate power and lawful authority to 
assign, transfer and pledge the Initial Receivables and the related Other 
Trust Property.  The Sale and Servicing Agreement constitutes a valid sale, 
transfer and assignment of the Other Trust Property to the Trust enforceable 
against creditors of and purchasers of the Seller.  In the event that, in 
contravention of the intention of the parties, the transfer of the Other 
Trust Property by the Seller to the Trust is characterized as other than a 
sale, such transfer shall be characterized as a secured financing, and the 
Trust shall have a valid and perfected first priority security interest in 
the Other Trust Property free and clear of all Liens and Restrictions on 
Transferability.

          (j)     ACCURACY OF INFORMATION.  Neither the Transaction Documents 
nor any documents, agreements, instruments, schedules, certificates, 
statements, cash flow schedules, number runs or other writings or data 
(collectively, the "Documents") furnished to Financial Security by the Seller 
or Arcadia Financial with respect to either of them, their Subsidiaries, the 
Receivables or the Transaction contain any statement of a material fact which 
was untrue or misleading in any material respect when made (except insofar as 
any Document was corrected or superseded by a subsequent Document and 
Financial Security has not detrimentally relied on the original Document).  
There is no fact known to the Seller or Arcadia Financial which has a 
material possibility of causing a Material Adverse Change with respect to the 
Seller or Arcadia Financial, or which has a material possibility of impairing 
the value or marketability of the Receivables, taken as a whole, or 
decreasing the probability that amounts due in respect of the Receivables 
will be collected as due.  Since the furnishing of the Transaction Documents, 
there has been no change or any development or event involving a prospective 
change known to the Seller or Arcadia Financial which would render any 
representation or warranty or other statement made by either of them in any 
of the Transaction Documents untrue or misleading in a material respect.

          (k)     COMPLIANCE WITH INVESTMENT COMPANY ACT.  The Seller is not 
required to be registered as an "investment company" under the Investment 
Company Act.

          (l)     INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. 
The representations and warranties of the Seller set forth in the Transaction 
Documents are (in each case) true and correct as if set forth herein.  

          (m)     SPECIAL PURPOSE ENTITY.

                  (i)     The capital of the Seller is adequate for the business
     and undertakings of the Seller.

                 (ii)     Other than with respect to the ownership by Arcadia
     Financial of the stock of the Seller and as provided in the Previous Series
     Transaction Documents, the Purchase Agreement, the Sale and Servicing
     Agreement, and the Spread Account 

                                      19
<PAGE>


     Agreement, the Seller is not engaged in any business transactions with 
     Arcadia Financial or any Affiliate of Arcadia Financial.

                (iii)     At least one director of the Seller shall be a person
     who is not, and will not be, a director, officer, employee or holder of any
     equity securities of Arcadia Financial or any of its Affiliates or
     Subsidiaries.

                 (iv)     The Seller's funds and assets are not, and will not 
     be, commingled with the funds of any other Person, except as provided in 
     the Transaction Documents.

                  (v)     The by-laws of the Seller require it to maintain (A)
     correct and complete minute books and records of account, and (B) minutes
     of the meetings and other proceedings of its shareholders and board of
     directors.

          (n)     SOLVENCY; FRAUDULENT CONVEYANCE.  The Seller is solvent and 
will not be rendered insolvent by the Transaction and, after giving effect to 
such Transaction, the Seller will not be left with an unreasonably small 
amount of capital with which to engage in its business.  The Seller does not 
intend to incur, or believe that it has incurred, debts beyond its ability to 
pay such debts as they mature.  The Seller does not contemplate the 
commencement of insolvency, bankruptcy, liquidation or consolidation 
proceedings or the appointment of a receiver, liquidator, conservator, 
trustee or similar official in respect of the Seller or any of its assets.  
The amount of consideration being received by the Seller upon the sale of the 
Initial Receivables and related Other Trust Property and contemplated to be 
received upon the Sale of the Subsequent Receivables and related Other Trust 
Property constitutes reasonably equivalent value and fair consideration for 
interest in such Receivables and such Other Trust Property.  The Seller is 
not transferring the Other Trust Property to the Trust, as provided in the 
Transaction Documents, with any intent to hinder, delay or defraud any of the 
Seller's creditors.

          (o)     REGISTRATION STATEMENTS; PROSPECTUS.  The Seller has filed 
with the Securities and Exchange Commission (the "Commission") a registration 
statement on Form S-3 (No. 333-18021), including a preliminary prospectus and 
prospectus supplement for the registration of the Notes under the Securities 
Act, has filed such amendments thereto, and such amended preliminary 
prospectuses and prospectus supplements as may have been required to the date 
hereof, and will file such additional amendments thereto and such amended 
prospectuses and prospectus supplements as may hereafter be required.  Such 
registration statements (as amended, if applicable) and the prospectus, 
together with the prospectus supplement relating to the Notes, constituting a 
part thereof (including in each case all documents, if any, incorporated by 
reference therein and the information, if any, deemed to be part thereof 
pursuant to the rules and regulations of the Commission under the Securities 
Act (the "Rules and Regulations"), as from time to time amended or 
supplemented pursuant to the Securities Act or otherwise, are hereinafter 
referred to as the "Registration Statements" and the "Prospectus," 
respectively, except that if any revised prospectus or prospectus supplement 
shall be provided by the Seller for use in connection with the offering of 
the Notes which differs from the Prospectus filed with the Commission 
pursuant to Rule 424 of the Rules and Regulations (whether or not such 
revised prospectus is required to be filed by the Seller pursuant to Rule 424 
of the Rules and Regulations), the term "Prospectus" shall refer to such 
revised prospectus and prospectus 

                                      20

<PAGE>


supplement from and after the time it is first provided to the Underwriter 
for such use.  The Registration Statements at the time they became effective 
complied, and at each time that the Prospectus is provided to the 
Underwriters for use in connection with the offering or sale of any Note will 
comply, in all material respects with the requirements of the Securities Act 
and the Rules and Regulations.  The Registration Statements and the 
Prospectus at the time the Registration Statements became effective did not 
and on the date hereof does not, contain an untrue statement of a material 
fact or omit to state a material fact required to be stated therein or 
necessary to make the statements therein not misleading and the Prospectus at 
the time it was first provided to the Underwriters for use in connection with 
the offering of the Notes did not, and on the date hereof does not, contain 
any untrue statement of a material fact or omit to state a material fact 
necessary to make the statements therein in light of the circumstances under 
which they were made not misleading, except that the representations and 
warranties in this subparagraph shall not apply to statements in or omissions 
from the Registration Statements or the Prospectus or any preliminary 
prospectusmade in reliance upon information furnished to the Seller in writing 
by Financial Security expressly for use therein or the financial statements
(including the related notes thereto) of Financial Security.

          (p)     ERISA.  The Seller is in compliance with ERISA and has not
incurred and does not reasonably expect to incur any liabilities to the PBGC
under ERISA in connection with any Plan or Multiemployer Plan or to contribute
now or in the future in respect of any Plan or Multiemployer Plan.

          (q)     PLEDGE OF SHARES.  The shares of stock of the Seller which
have been pledged pursuant to the Stock Pledge Agreement constitute all of the
issued and outstanding shares of the Seller.

          (r)     PERFECTION OF LIENS AND SECURITY INTEREST.  On the Closing
Date, the Lien and security interest in favor of the Indenture Collateral Agent
with respect to Indenture Property will be perfected by the filing of financing
statements on Form UCC-1 in each jurisdiction where such recording or filing is
necessary for the perfection thereof, the delivery of the Receivable Files for
the Receivables to the Custodian, and the establishment of the Collection
Account, the Subcollection Account, the Lockbox Account, the Pre-Funding
Account, the Reserve Account and the Note Distribution Account in accordance
with the provisions of the Transaction Documents, and no other filings in any
jurisdiction or any other actions (except as expressly provided herein) are
necessary to perfect the Collateral Agent's Lien on and security interest in the
Collateral as against any third parties.

          (s)     SECURITY INTEREST IN FUNDS AND INVESTMENTS.  Assuming the
retention of funds in the Accounts and the acquisition of Eligible Investments
in accordance with the Transaction Documents, such funds and Eligible
Investments will be subject to a valid and perfected, first priority security
interest in favor of the Collateral Agent on behalf of the Indenture Trustee (on
behalf of the Noteholders) and Financial Security.

          Section 2.05.  AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL AND THE 
SELLER.  Each of Arcadia Financial and the Seller hereby agree that during 
the Term of the Agreement, unless Financial Security shall otherwise 
expressly consent in writing:

                                      21

<PAGE>


          (a)     COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  The Seller
will comply with all terms and conditions of this Agreement and each other
Transaction Document to which it is a party and with all material requirements
of any law, rule or regulation applicable to it.  The Seller will not cause or
permit to become effective any amendment to or modification of any of the
Transaction Documents to which it is a party unless (i) (so long as no Insurer
Default shall have occurred and be continuing) Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such amendment
would not adversely affect the interests of Financial Security.  The Seller
shall not take any action or fail to take any action that would interfere with
the enforcement of any rights under this Agreement or the other Transaction
Documents.

          (b)     CORPORATE EXISTENCE.  The Seller shall maintain its
corporate existence and shall at all times continue to be duly organized under
the laws of Delaware and duly qualified and duly authorized (as described in
Sections 2.04(a), (b) and (c) hereof) and shall conduct its business in
accordance with the terms of its corporate charter and bylaws.

          (c)     FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER 
INFORMATION.  The Seller shall keep or cause to be kept in reasonable detail 
books and records of account of the Seller's assets and business, and shall 
clearly reflect therein the transfer of the Receivables and the Other Trust 
Property to the Trust and the sale of the Receivables as a sale to the Trust 
of the Seller's interest in the Receivables and the Other Trust Property.  
The Seller shall furnish to Financial Security, simultaneously with the 
delivery of such documents to the Trustee or the Noteholders, as the case may 
be, copies of all reports, certificates, statements, financial statements or 
notices furnished to the Trustee or the Noteholders, as the case may be, 
pursuant to the Transaction Documents.  The Seller shall furnish to Financial 
Security as soon as available, and in any event within 90 days after the 
close of each fiscal year of the Seller, the unaudited balance sheet of the 
Seller as of the end of such fiscal year and the unaudited statements of 
income, changes in shareholders' equity and cash flows of the Seller for such 
fiscal year, all in reasonable detail and stating in comparative form the 
respective figures for the preceding fiscal year, prepared in accordance with 
generally accepted accounting principles, consistently applied.

          (d)     COMPLIANCE CERTIFICATE.  The Seller shall deliver to
Financial Security, within 90 days after the close of each fiscal year of the
Seller, a certificate signed by an Authorized Officer of the Seller stating
that:

                  (i)     a review of the Seller's performance under the
     Transaction Documents during such period has been made under such 
     officer's supervision; and

                 (ii)     to the best of such individual's knowledge following
     reasonable inquiry, no Default or Event of Default has occurred, or if a
     Default or Event of Default has occurred, specifying the nature thereof
     and, if the Seller has or had a right to cure pursuant to Section 5.01,
     stating in reasonable detail the steps, if any, taken or being taken by the
     Seller to cure such Default or Event of Default or to otherwise comply with
     the terms of the Transaction Document to which such Default or Event of
     Default relates.

                                      22

<PAGE>


                (iii)     the financial reports submitted in accordance with
     Section 2.05(c) hereof, are complete and correct in all material respects
     and present fairly the financial condition and results of operations of the
     Seller as of the dates and for the periods indicated, in accordance with
     generally accepted accounting principles consistently applied.

          (e)      ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND
ACCOUNTANTS.  The Seller shall, upon the request of Financial Security, permit
Financial Security or its authorized agents (i) to inspect the books and records
of the Seller as they may relate to the Notes, the Receivables and the Other
Trust Property, the obligations of the Seller under the Transaction Documents,
the Seller's business and the Transaction and (ii) to discuss the affairs,
finances and accounts of the Seller with any of its officers, directors and
representatives, including its Independent Accountants.  Such inspections and
discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of the Seller.  The books and records of the
Seller will be maintained at the address of the Seller designated herein for
receipt of notices, unless the Seller shall otherwise advise the parties hereto
in writing.

          (f)     NOTICE OF MATERIAL EVENTS.  The Seller shall promptly inform
Financial Security in writing of the occurrence of any of the following:

                  (i)     the submission of any claim or the initiation of any
     legal process, litigation or administrative or judicial investigation
     against the Seller involving potential damages or penalties in an uninsured
     amount in excess of $5,000 in any one instance or $25,000 in the aggregate;

                 (ii)     any change in the location of Seller's principal 
     office or any change in the location of the Seller's books and records;

                (iii)     the occurrence of any Default or Event of Default;

                 (iv)     the commencement or threat of any rule making or
     disciplinary proceedings or any proceedings instituted by or against the
     Seller in any federal, state or local court or before any governmental body
     or agency, or before any arbitration board, or the promulgation of any
     proceeding or any proposed or final rule which, if adversely determined,
     would result in a Material Adverse Change with respect to the Seller or the
     Trust;

                  (v)     the commencement of any proceedings by or against the
     Seller under any applicable bankruptcy, reorganization, liquidation,
     rehabilitation, insolvency or other similar law now or hereafter in effect
     or of any proceeding in which a receiver, liquidator, conservator, trustee
     or similar official shall have been, or may be, appointed or requested for 
     the Seller or any of its assets;

                 (vi)     the receipt of notice that (A) the Seller is being
     placed under regulatory supervision, (B) any license, permit, charter,
     registration or approval necessary for the conduct of the Seller's business
     is to be, or may be, suspended or 

                                      23

<PAGE>

     revoked, or (C) the Seller is to cease and desist any practice, procedure 
     or policy employed by the Seller in the conduct of its business, and such 
     cessation may result in a Material Adverse Change with respect to the 
     Seller or the Trust; or

                (vii)     any other event, circumstance or condition that has
     resulted, or has a material possibility of resulting, in a Material Adverse
     Change in respect of the Seller or the Trust.

          (g)     FURTHER ASSURANCES.  The Seller will file all necessary
financing statements, assignments or other instruments, and any amendments or
continuation statements relating thereto, necessary to be kept and filed in such
manner and in such places as may be required by law to preserve and protect
fully the Lien and security interest in, and all rights of the Trust with
respect to Other Trust Property, under the Sale and Servicing Agreement.  In
addition, the Seller shall, upon the request of Financial Security (so long as
no Insurer Default has occurred and is continuing), from time to time, execute,
acknowledge and deliver and, if necessary, file such further instruments and
take such further action as may be reasonably necessary to effectuate the
intention, performance and provisions of the Transaction Documents to which the
Seller is a party or to protect the interest of the Trust in the Receivables
under the Sale and Servicing Agreement.  The Seller agrees to cooperate with the
Rating Agencies in connection with any review of the Transaction which may be
undertaken by the Rating Agencies after the date hereof.

          (h)     MAINTENANCE OF LICENSES.  The Seller shall maintain all
licenses, permits, charters and registrations which are material to the
performance by the Seller of its obligations under this Agreement and each other
Transaction Document to which the Seller is a party or by which the Seller is
bound.

          (i)     DISCLOSURE DOCUMENT.  Each Prospectus delivered with respect
to the Notes  shall clearly disclose that the Note Policy is not covered by the
property/casualty insurance security fund specified in Article 76 of the New
York Insurance Law.  In addition, each Prospectus delivered with respect to the
Notes which includes financial statements of Financial Security prepared in
accordance with generally accepted accounting principles (other than a
Prospectus that only incorporates such financial statements by reference) shall
include the following statement immediately preceding such financial statements:

          The New York State Insurance Department recognizes only
          statutory accounting practices for determining and reporting
          the financial condition and results of operations of an
          insurance company, for determining its solvency under the
          New York Insurance Law, and for determining whether its
          financial condition warrants the payment of a dividend to
          its stockholders.  No consideration is given by the New York
          State Insurance Department to financial statements prepared
          in accordance with generally accepted accounting principles
          in making such determinations.


                                      24

<PAGE>

          (j)     SPECIAL PURPOSE ENTITY.

                  (i)     The Seller shall conduct its business solely in its 
     own name through its duly authorized officers or agents so as not to 
     mislead others as to the identity of the entity with which those others 
     are concerned, and particularly will use its best efforts to avoid the
     appearance of conducting business on behalf of Arcadia Financial or any
     other Affiliate thereof or that the assets of the Seller are available to
     pay the creditors of Arcadia Financial or any Affiliate thereof.  Without
     limiting the generality of the foregoing, all oral and written
     communications, including, without limitation, letters, invoices, purchase 
     orders, contracts, statements and loan applications, will be made solely in
     the name of the Seller.

                 (ii)     The Seller shall maintain corporate records and books
     of account separate from those of Arcadia Financial and the other
     Affiliates thereof.

                (iii)     The Seller shall obtain proper authorization from its
     board of directors of all corporate action requiring such authorization,
     meetings of the board of directors of the Seller shall be held not less
     frequently than three times per annum and copies of the minutes of each
     such board meeting shall be delivered to Financial Security within two
     weeks of such meeting.

                 (iv)     The Seller shall obtain proper authorization from its
     shareholders of all corporate action requiring shareholder approval,
     meetings of the shareholders of the Seller shall be held not less
     frequently than one time per annum and copies of each such authorization
     and the minutes of each such shareholder meeting shall be delivered to
     Financial Security within two weeks of such authorization or meeting, as
     the case may be.

                  (v)     Although the organizational expenses of the Seller 
     have been paid by Arcadia Financial, operating expenses and liabilities 
     of the Seller shall be paid from its own funds.

                 (vi)     The annual financial statements of the Seller shall
     disclose the effects of the Seller's transactions in accordance with
     generally accepted accounting principles and shall disclose that the assets
     of the Seller are not available to pay creditors of Arcadia Financial or
     any other Affiliate thereof.

                (vii)     The resolutions, agreements and other instruments of
     the Seller underlying the transactions described in this Agreement and in
     the other Transaction Documents shall be continuously maintained by the
     Seller as official records of the Seller separately identified and held
     apart from the records of Arcadia Financial and each other Affiliate
     thereof.

               (viii)     The Seller shall maintain an arm's-length relationship
     with Arcadia Financial and the other Affiliates thereof and will not hold
     itself out as being liable for the debts of Arcadia Financial or any
     Affiliate thereof.

                                      25

<PAGE>


                 (ix)     The Seller shall keep its assets and its liabilities
     wholly separate from those of all other entities, including, but not
     limited to Arcadia Financial and the other Affiliates thereof except, in
     each case, as contemplated by the Transaction Documents.

          (k)     CLOSING DOCUMENTS.  The Seller shall provide or cause to be
provided to Financial Security an executed original copy of each document
executed in connection with the Transaction within 10 days after the Closing
Date, except that the Seller shall cause a copy of the Trust Agreement, the Sale
and Servicing Agreement, the Series 1997-B Supplement, the Indenture, the
Administration Agreement and each Transaction Document to which Financial
Security is a party to be provided to Financial Security on the Closing Date.

          (l)     SUBSEQUENT RECEIVABLES: GOOD TITLE; VALID TRANSFER; ABSENCE
OF LIENS; SECURITY INTEREST.  Immediately prior to the sale to the Trust
pursuant to a Subsequent Transfer Agreement, the Seller will be the owner of,
and shall have good and marketable title to, the Subsequent Receivables
transferred thereby and the related Other Trust Property free and clear of all
Liens and Restrictions on Transferability, and shall have full right, corporate
power and lawful authority to assign, transfer and pledge such property. 

          (m)     INCORPORATION OF COVENANTS.  The Seller agrees to comply
with each of the Seller's covenants set forth in the Transaction Documents and
hereby incorporates such covenants by reference as if each were set forth
herein.

          Section 2.06  NEGATIVE COVENANTS OF ARCADIA FINANCIAL AND THE 
SELLER.  Each of Arcadia Financial and the Seller hereby agrees that during 
the Term of this Agreement, unless Financial Security shall otherwise give 
its prior express written consent:

          (a)     WAIVER, AMENDMENTS, ETC.  The Seller shall not waive,
modify, amend, supplement or consent to any waiver, modification, amendment of
or supplement to, any of the provisions of any of the Transaction Documents or
Previous Series Transaction Documents or of its certificate of incorporation or
by-laws (i) unless, if no Insurer Default shall have occurred and be continuing,
Financial Security shall have consented thereto in writing or (ii) if an Insurer
Default shall have occurred and be continuing, which would adversely affect the
interests of Financial Security.

          (b)     CREATION OF INDEBTEDNESS; GUARANTEES.  The Seller shall not
create, incur, assume or suffer to exist any indebtedness or assume, guarantee,
endorse or otherwise be or become directly or contingently liable for the
obligations of any Person by, among other things, agreeing to purchase any
obligation of another Person, agreeing to advance funds to such Person or
causing or assisting such Person to maintain any amount of capital, except as
contemplated by the Transaction Documents or as contemplated by the documents
relating to a Series of Notes.

          (c)     SUBSIDIARIES.  The Seller shall not form, or cause to be
formed, any Subsidiaries.

                                      26

<PAGE>


          (d)     NO LIENS.  The Seller shall not, except as contemplated by 
the Transaction Documents or as contemplated by the documents relating to a 
Series of Notes, create, incur, assume or suffer to exist any Lien of any 
nature upon or with respect to any of its properties or assets, now owned or 
hereafter acquired, or sign or file under the Uniform Commercial Code of any 
jurisdiction any financing statement that names the Seller as debtor, or sign 
any security agreement authorizing any secured party thereunder to file such 
a financing statement.

          (e)     ISSUANCE OF STOCK.  The Seller shall not issue any shares of
capital stock or rights, warrants or options in respect of its capital stock or
securities convertible into or exchangeable for its capital stock, other than
the shares of common stock which have been pledged to Financial Security under
the Seller Stock Pledge Agreement.

          (f)     IMPAIRMENT OF RIGHTS.  The Seller shall not take any action,
or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under the Transaction Documents
that are material to the rights, benefits or obligations of the Trust, the
Indenture Trustee, the Noteholders or Financial Security.

          (g)     NO MERGERS.  The Seller shall not consolidate with or merge
into any Person or transfer all or any material amount of its assets to any
Person (except as contemplated by the Transaction Documents or the documents
relating to a Series of Notes).

          (h)     ERISA.  The Seller shall not contribute or incur any
obligation to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan.

          (i)     OTHER ACTIVITIES.  The Seller shall not:

                  (i)     sell, pledge, transfer, exchange or otherwise dispose
     of any of its assets except as permitted under the Transaction Documents 
     or the documents relating to a Series of Notes; or

                 (ii)     engage in any business or activity except as
     contemplated by the Transaction Documents or as contemplated by the
     documents relating to a Series of Notes and as permitted by its 
     certificate of incorporation.

          (j)     INSOLVENCY.  The Seller shall not commence any case, 
proceeding or other action (A) under any existing or future law of any 
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, 
reorganization or relief of debtors, seeking to have an order for relief 
entered with respect to it, or seeking reorganization, arrangement, 
adjustment, winding-up, liquidation, dissolution, consolidation or other 
relief with respect to it or the Trust or (B) seeking appointment of a 
receiver, trustee, custodian or other similar official for it or for the 
Trust or for all or any substantial part of its assets or the Collateral 
related to any or all Series, or make a general assignment for the benefit of 
its creditors.  The Seller shall not take any action in furtherance of, or 
indicating the consent to, approval of, or acquiescence in any of the acts 
set forth above.  The Seller shall not admit in writing its inability to pay 
its debts.

                                      27


<PAGE>

          (k)       DIVIDENDS.  The Seller shall not declare or make payment of
(i) any dividend or other distribution on any shares of its capital stock, or
(ii) any payment on account of the purchase, redemption, retirement or
acquisition of any option, warrant or other right to acquire shares of its
capital stock, unless (in each case) at the time of such declaration or payment
(and after giving effect thereto) no amount payable by the Seller under any
Transaction Document with respect to any Series is then due and owing but
unpaid.

          Section 2.07.    REPRESENTATIONS AND WARRANTIES OF ARCADIA FINANCIAL.
Arcadia Financial represents and warrants, as of the date hereof and as of the 
Closing Date, as follows:

          (a)       DUE ORGANIZATION AND QUALIFICATION.  Arcadia Financial and
each of its Subsidiaries is a corporation, duly organized, validly existing and
in good standing under the laws of the State of its respective incorporation
with power and authority to own its properties and conduct its business. 
Arcadia Financial and each of its Subsidiaries is duly qualified to do business 
and is in good standing in each jurisdiction in which the failure to be so
qualified would render any of the Receivables unenforceable in any respect or
would otherwise have a material adverse effect upon the Transaction.  Arcadia
Financial and each of its Subsidiaries has obtained all licenses, permits,
charters, registrations and approvals necessary for the conduct of its business
as currently conducted and as described in the Prospectus and for the
performance of its obligations under the Transaction Documents.  

          (b)       POWER AND AUTHORITY.  Arcadia Financial has all necessary
corporate power and authority to conduct its business as currently conducted
and as described in the Prospectus, to execute, deliver and perform its 
obligations under this Agreement and each other Transaction Document to which 
it is a party and to carry out the terms of each such agreement.

          (c)       DUE AUTHORIZATION.  The execution, delivery and 
performance of this Agreement and each other Transaction Document to which 
Arcadia Financial is a party has been duly authorized by all necessary corporate
action and does not require any additional approvals or consents or other action
by or any notice to or filing with any Person, including, without limitation, 
any governmental entity or Arcadia Financial's stockholders.

          (d)       NONCONTRAVENTION.  Neither the execution and delivery of
this Agreement and each other Transaction Document to which Arcadia Financial
is a party, the consummation of the Transaction, nor the satisfaction of the 
terms and conditions of this Agreement and each other Transaction Document to 
which Arcadia Financial is a party,

              (i)       conflicts with or results in any breach or violation of
      any provision of the corporate charter or bylaws of Arcadia Financial or 
      any law, rule, regulation, order, writ, judgment, injunction, decree, 
      determination or award currently in effect having applicability to 
      Arcadia Financial or any of its properties, including regulations issued
      by an administrative agency or other governmental authority having 
      supervisory powers over Arcadia Financial,

              (ii)       constitutes a default by Arcadia Financial under or a
      breach of any provision of any loan agreement, mortgage, indenture or 
      other agreement or instrument

                                      28


<PAGE>

      to which Arcadia Financial or any of its Subsidiaries is a party or by 
      which it or any of its or their properties is or may be bound or 
      affected, or

              (iii)      results in or requires the creation of any Lien upon 
      or in respect of any of Arcadia Financial's assets, except as otherwise
      expressly contemplated by the Transaction Documents.

          (e)       PENDING LITIGATION OR OTHER PROCEEDING.  There is no action,
proceeding or investigation pending, or, to Arcadia Financial's best knowledge,
threatened, before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over Arcadia Financial or its
properties:  (A) asserting the invalidity of this Agreement or any other
Transaction Document to which Arcadia Financial is a party, (B) seeking to
prevent the issuance of the Notes, or the consummation of the Transaction,
(C) seeking any determination or ruling that might materially and adversely
affect the validity or enforceability of, this Agreement or any other
Transaction Document to which Arcadia Financial is a party, (D) which might
result in a Material Adverse Change with respect to Arcadia Financial or
(E) which might adversely affect the federal or state tax attributes of the
Notes or the Trust.

          (f)       VALID AND BINDING OBLIGATIONS.  The Purchase Agreement
constitutes a valid sale, transfer, and assignment of the Receivables and Other
Trust Property to the Seller, enforceable against creditors of and purchasers
from Arcadia Financial.  Each of the other Transaction Documents to which
Arcadia Financial is a party when executed and delivered by Arcadia Financial,
and assuming the due authorization, execution and delivery by the other parties
thereto, will constitute the legal, valid and binding obligation of Arcadia
Financial enforceable in accordance with its respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equitable principles.  

          (g)       NO CONSENTS.  No consent, license, approval or authorization
from, or registration, filing or declaration with, any regulatory body,
administrative agency, or other governmental instrumentality, nor any consent,
approval, waiver or notification of any creditor, lessor or other
non-governmental person, is required in connection with the execution, delivery
and performance by Arcadia Financial of this Agreement or of any other
Transaction Document to which Arcadia Financial is a party, except (in each
case) such as have been obtained and are in full force and effect.

          (h)       FINANCIAL STATEMENTS.  The Financial Statements of Arcadia
Financial, copies of which have been furnished to Financial Security, (i) are,
as of the dates and for the periods referred to therein, complete and correct in
all material respects, (ii) present fairly the financial condition and results
of operations of Arcadia Financial as of the dates and for the periods indicated
and (iii) have been prepared in accordance with generally accepted accounting
principles consistently applied, except as noted therein (subject as to interim
statements to normal year-end adjustments and the absence of notes).  Since the
date of the most recent Financial Statements, there has been no material 
adverse change in such financial condition or results of operations.  Except as
disclosed in the Financial Statements, Arcadia Financial is not 

                                      29

<PAGE>

subject to any contingent liabilities or commitments that, individually or in 
the aggregate, have a reasonable likelihood of causing a Material Adverse 
Change in respect of Arcadia Financial. 

          (i)       COMPLIANCE WITH LAW, ETC.  No practice, procedure or policy
employed or proposed to be employed by Arcadia Financial in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to Arcadia Financial which, if enforced, would result in a Material
Adverse Change with respect to Arcadia Financial. 

          (j)       TAXES.  Arcadia Financial has, and each of its Subsidiaries
have, filed all federal and state tax returns and paid all taxes to the extent
that such taxes have become due.  Any taxes, fees and other governmental 
charges payable by Arcadia Financial in connection with the Transaction, the 
execution and delivery of the Transaction Documents and the issuance of the 
Notes have been paid or shall have been paid at or prior to the Closing Date.

          (k)       ERISA.  Arcadia Financial is in compliance with ERISA and
has not incurred and does not reasonably expect to incur any liabilities to the
PBGC under ERISA in connection with any Plan or Multiemployer Plan or to
contribute now or in the future in respect of any Plan or Multiemployer Plan
except in accordance with the provisions of Section 2.9(e) hereof.

          (l)       INCORPORATION OF CERTAIN REPRESENTATIONS AND WARRANTIES. 
Arcadia Financial represents and warrants to Financial Security that the
representations and warranties of Arcadia Financial set forth in the Transaction
Documents are (in each case) true and correct as if set forth herein.  

          Section 2.08.      AFFIRMATIVE COVENANTS OF ARCADIA FINANCIAL.  
Arcadia Financial hereby agrees that during the Term of the Agreement, unless
Financial Security shall otherwise expressly consent in writing:

          (a)       COMPLIANCE WITH AGREEMENTS AND APPLICABLE LAWS.  Arcadia
Financial will comply with all terms and conditions of this Agreement and each
other Transaction Document to which it is a party and all material requirements
of any law, rule or regulation applicable to it.  Arcadia Financial will not
cause or permit to become effective any amendment to or modification of any
Transaction Document to which it is a party (i) unless, so long as no Insurer
Default shall have occurred and be continuing, Financial Security shall have
previously approved in writing the form of such amendment or modification or
(ii) if an Insurer Default shall have occurred and be continuing, such amendment
would not adversely affect the interests of Financial Security.  Arcadia
Financial shall not take any action or fail to take any action that would
interfere with the enforcement of any rights under this Agreement or the other
Transaction Documents.

          (b)       CORPORATE EXISTENCE.  Arcadia Financial shall maintain its
corporate existence and shall at all times continue to be duly organized under
the laws of Minnesota and duly qualified and duly authorized (as described in
Sections 2.07(a), (b) and (c) hereof) and shall conduct its business in
accordance with the terms of its corporate charter and bylaws.

                                      30

<PAGE>

          (c)       FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER
INFORMATION.  Arcadia Financial shall keep or cause to be kept in reasonable
detail books and records of account of Arcadia Financial's assets and business. 
Arcadia Financial, so long as it shall be the Servicer, shall furnish to
Financial Security, simultaneously with the delivery of such documents to the
Owner Trustee, Indenture Trustee or the Noteholders, as the case may be, copies
of all reports, certificates, statements or notices furnished to the Owner
Trustee, Indenture Trustee or the Noteholders, as the case may be, pursuant to
the Transaction Documents.  Arcadia Financial shall also furnish or cause to be
furnished to Financial Security:

              (i)        ANNUAL FINANCIAL STATEMENTS.  As soon as available, and
      in any event within 90 days after the close of each fiscal year of Arcadia
      Financial, the audited balance sheets of Arcadia Financial and its
      subsidiaries as of the end of such fiscal year and the audited 
      consolidated statements of income, changes in shareholders' equity and 
      cash flows of Arcadia Financial for such fiscal year, all in reasonable 
      detail and stating in comparative form the respective figures for the 
      corresponding date and period in the preceding fiscal year, prepared in 
      accordance with generally accepted accounting principles, consistently 
      applied, and accompanied by the certificate of Arcadia Financial's 
      independent accountants (which, so long as no Insurer Default shall have
      occurred and be continuing, shall be acceptable to Financial Security) 
      and by the certificate specified in Section 2.08(d) hereof.

              (ii)       QUARTERLY FINANCIAL STATEMENTS.  As soon as available,
      and in any event within 45 days after the close of each of the first 
      three quarters of each fiscal year of Arcadia Financial, the unaudited
      consolidated balance sheets of Arcadia Financial as of the end of such
      quarter and the unaudited consolidated statements of income, changes in
      shareholders' equity and cash flows of Arcadia Financial for the portion 
      of the fiscal year then ended, all in reasonable detail and stating in
      comparative form the respective figures for the corresponding date and
      period in the preceding fiscal year, prepared in accordance with 
      generally accepted accounting principles consistently applied (subject to
      normal year-end adjustments), and accompanied by the certificate 
      specified in Section 2.08(d) hereof.

              (iii)      ACCOUNTANTS' REPORTS.  Promptly upon receipt thereof,
      copies of any reports submitted to Arcadia Financial by its independent
      accountants in connection with any examination of the financial 
      statements of Arcadia Financial.

              (iv)       CERTAIN INFORMATION.  Promptly after the filing or
      sending thereof, copies of all proxy statements, financial statements,
      reports and registration statements which Arcadia Financial files, or
      delivers to, the IRS, the Commission, or any other federal government
      agency, authority or body which supervises the issuance of securities by
      Arcadia Financial or any national securities exchange.

          (d)       COMPLIANCE CERTIFICATE.  Arcadia Financial shall deliver 
to Financial Security within 90 days after the close of each fiscal year of 
Arcadia Financial, a certificate signed by an Authorized Officer of Arcadia 
Financial stating that:

                                      31

<PAGE>

              (i)        a review of Arcadia Financial's performance under the
      Transaction Documents during such period has been made under such 
      officer's supervision;

              (ii)       to the best of such individual's knowledge following
      reasonable inquiry, no Default or Event of Default has occurred, or if a
      Default or Event of Default has occurred, specifying the nature thereof
      and, if Arcadia Financial has or had a right to cure pursuant to Section
      5.01 hereof, stating in reasonable detail the steps, if any, taken or 
      being taken by Arcadia Financial to cure such Default or Event of Default
      or to otherwise comply with the terms of the Transaction Document to 
      which such Default or Event of Default relates; and

              (iii)      the financial statements submitted in accordance with
      Section 2.08(c) hereof, as applicable, are complete and correct in all
      material respects and present fairly the financial condition and results 
      of operations of Arcadia Financial as of the dates and for the periods
      indicated, in accordance with generally accepted accounting principles
      consistently applied (subject as to interim statements to normal year-end
      adjustments and the absence of notes).

          (e)       ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND
ACCOUNTANTS.  Arcadia Financial shall, upon the request of Financial Security,
permit Financial Security or its authorized agents (i) to inspect the books and
records of Arcadia Financial as they may relate to the Notes, the Receivables,
the obligations of Arcadia Financial as Servicer under the Transaction
Documents, its business and the Transaction and (ii) to discuss the affairs,
finances and accounts of Arcadia Financial with any of its officers, directors
and representatives, including its Independent Accountants.  Such inspections
and discussions shall be conducted during normal business hours and shall not
unreasonably disrupt the business of Arcadia Financial.  The books and records
of Arcadia Financial will be maintained at the address of Arcadia Financial
designated herein for receipt of notices, unless Arcadia Financial shall
otherwise advise the parties hereto in writing.

          (f)       NOTICE OF MATERIAL EVENTS.  Arcadia Financial shall promptly
inform Financial Security in writing of the occurrence of any of the following:

              (i)        the submission of any claim or the initiation of any
      legal process, litigation or administrative or judicial investigation
      against Arcadia Financial involving potential damages or penalties in an
      uninsured amount in excess of $10,000 in any one instance or $25,000 in 
      the aggregate;

              (ii)       any change in the location of Arcadia Financial's
      principal office or any change in the location of the Arcadia Financial's
      books and records;

              (iii)      the occurrence of any Default or Event of Default;

              (iv)       the commencement or threat of any rule making or
      disciplinary proceedings or any proceedings instituted by or against
      Arcadia Financial in any federal, state or local court or before any
      governmental body or agency, or before any arbitration

                                      32

<PAGE>

      board, or the promulgation of any proceeding or any proposed or final 
      rule which, if adversely determined, would result in a Material Adverse 
      Change with respect to Arcadia Financial;

              (v)        the commencement of any proceedings by or against
      Arcadia Financial under any applicable bankruptcy, reorganization,
      liquidation, rehabilitation, insolvency or other similar law now or
      hereafter in effect or of any proceeding in which a receiver, liquidator,
      conservator, trustee or similar official shall have been, or may be,
      appointed or requested for Arcadia Financial or any of its assets;

              (vi)          the receipt of notice that (A) Arcadia Financial is
      being placed under regulatory supervision, (B) any license, permit,
      charter, registration or approval necessary for the conduct of Arcadia
      Financial's business is to be, or may be, suspended or revoked, or (C)
      Arcadia Financial is to cease and desist any practice, procedure or 
      policy employed by Arcadia Financial in the conduct of its business, and
      such cessation may result in a Material Adverse Change with respect to 
      Arcadia Financial; or

              (vii)      any other event, circumstance or condition that has
      resulted, or has a material possibility of resulting, in a Material 
      Adverse Change in respect of Arcadia Financial.

          (g)       MAINTENANCE OF LICENSES.  Arcadia Financial shall maintain
all licenses, permits, charters and registrations which are material to the
performance by Arcadia Financial of its obligations under this Agreement and
each other Transaction Document to which Arcadia Financial is a party or by
which Arcadia Financial is bound.

          (h)       ERISA.  Arcadia Financial shall give Financial Security
prompt notice of each of the following events (but in no event more than 30 
days after the occurrence of the event):  (i) an Accumulated Funding Deficiency,
(ii) the failure to make a required contribution to a Plan or Multiemployer 
Plan, (iii) a Reportable Event, (iv) any action by a Commonly Controlled Entity 
to terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by
the PBGC to terminate or appoint a trustee to administer a Plan, (vi) the
reorganization or insolvency of any Multiemployer Plan and (vii) an aggregate
Underfunding for all Underfunded Plans in excess of $100,000.  In addition,
Arcadia Financial shall promptly (but in no case more than 30 days following
issuance or receipt by the Commonly Controlled Entity) provide to Financial
Security a copy of all correspondence between a Commonly Controlled Entity and
the PBGC, IRS, Department of Labor or the administrators of a Multiemployer Plan
relating to any of the events described in the preceding sentence or the
underfunded status, termination or possible termination of a Plan or a
Multiemployer Plan.

          (i)       THIRD-PARTY BENEFICIARY.  Arcadia Financial agrees that
Financial Security shall have all rights of a third-party beneficiary in respect
of the Sale and Servicing Agreement, it being understood that the remedies of
Financial Security with respect to the representations and warranties set forth
in Section 2.4(b) thereof and the covenants set forth in Section 3.6(a) thereof 
shall be limited to the remedies set forth in the Sale and Servicing Agreement.

                                      33

<PAGE>

          (j)       INCORPORATION OF COVENANTS.  Arcadia Financial agrees to
comply with each of Arcadia Financial's covenants set forth in the Transaction
Documents and hereby incorporates such covenants by reference as if each were
set forth herein.

          Section 2.09       NEGATIVE COVENANTS OF ARCADIA FINANCIAL.  Arcadia 
Financial hereby agrees that during the Term of this Agreement, unless Financial
Security shall otherwise give its express written consent:

          (a)       RESTRICTIONS ON LIENS.  Arcadia Financial shall not create,
incur or suffer to exist, or agree to create, incur or suffer to exist, or
consent to cause or permit in the future (upon the happening of a contingency or
otherwise) the creation, incurrence or existence of any Lien or Restriction on
Transferability on the Receivables and the Other Trust Property except for the
Liens in favor of the Seller, the Trust and the Indenture Collateral Agent for
the benefit of the Indenture Trustee and Financial Security contemplated by the
Transaction Documents and the Restrictions on Transferability imposed by the
Purchase Agreement and the Sale and Servicing Agreement.

          (b)       IMPAIRMENT OF RIGHTS.  Arcadia Financial shall not take any
action, or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any rights under the Transaction Documents
that are material to the rights, benefits or obligations of the Seller, the
Trust, the Indenture Trustee, the Noteholders or Financial Security.

          (c)       LIMITATION ON MERGERS.  Arcadia Financial shall not
consolidate with or merge with or into any Person or transfer all or any
material part of its assets to any Person (except as contemplated by the
Transaction Documents) or liquidate or dissolve, provided that Arcadia Financial
may consolidate with, merge with or into, or transfer all or a material part of
its assets to, another corporation if (i) the acquiror of its assets, or the
corporation surviving such merger or consolidation, shall be organized and
existing under the laws of any state and shall be qualified to transact business
in each jurisdiction in which failure to qualify would render any Transaction
Document unenforceable or would result in a Material Adverse Change in respect
of Arcadia Financial or the Trust Property; (ii) after giving effect to such
consolidation, merger or transfer of assets, no Default or Event of Default
shall have occurred or be continuing; (iii) such acquiring or surviving entity
can lawfully perform the obligations of Arcadia Financial under the Transaction 
Documents and shall expressly assume in writing all of the obligations of
Arcadia Financial, including, without limitation, its obligations under the
Transaction Documents; and (iv) such acquiring or surviving entity and the
consolidated group of which it is a part shall each have a net worth immediately
subsequent to such consolidation, merger or transfer of assets at least equal to
the net worth of Arcadia Financial immediately prior to such consolidation,
merger or transfer of assets; and Arcadia Financial shall give Financial
Security written notice of any such consolidation, merger or transfer of assets
on the earlier of:  (A) the date upon which any publicly available filing or
release is made with respect to such action or (B) 10 Business Days prior to the
date of consummation of such action.  Arcadia Financial shall furnish to
Financial Security all information requested by it that is reasonably necessary
to determine compliance with this paragraph.

                                      34

<PAGE>

          (d)       WAIVER, AMENDMENTS, ETC.  Arcadia Financial shall not waive,
modify, amend, supplement or consent to any waiver, modification, amendment of
or supplement to, any of the provisions of any of the Transaction Documents
without the prior written consent of Financial Security (i) unless, so long as
no Insurer Default shall have occurred and be continuing, Financial Security
shall have consented thereto in writing or (ii) if an Insurer Default shall have
occurred and be continuing, which would adversely affect the interests of
Financial Security.

          (e)       ERISA.  Arcadia Financial shall not contribute or incur any
obligation to contribute to, or incur any liability in respect of, any Plan or
Multiemployer Plan, except that Arcadia Financial may make such a contribution
or incur such a liability provided that neither Arcadia Financial nor any
Commonly Controlled Entity will:

              (i)        terminate any Plan so as to incur any material
      liability to the PBGC;

              (ii)       knowingly participate in any "prohibited transaction"
      (as defined in ERISA) involving any Plan or Multiemployer Plan or any 
      trust created thereunder which would subject any of them to a material 
      tax or penalty on prohibited transactions imposed under Section 4975 of 
      the Code or ERISA;

              (iii)      fail to pay to any Plan or Multiemployer Plan any
      contribution which it is obligated to pay under the terms of such Plan or
      Multiemployer Plan, if such failure would cause such Plan to have any
      material Accumulated Funding Deficiency, whether or not waived; or

              (iv)       allow or suffer to exist any occurrence of a 
      Reportable Event, or any other event or condition, which presents a 
      material risk of termination by the PBGC of any Plan or Multiemployer 
      Plan, to the extent that the occurrence or nonoccurrence of such 
      Reportable Event or other event or condition is within the control of it 
      or any Commonly Controlled Entity.

          (f)       INSOLVENCY.  Arcadia Financial shall not commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, consolidation or other relief
with respect to the Seller or (B) seeking appointment of a receiver, trustee,
custodian or other similar official for the Seller.  Arcadia Financial shall not
take any action in furtherance of, or indicating the consent to, approval of, or
acquiescence in any of the acts set forth above.

                                ARTICLE III

                 THE NOTE POLICY; REIMBURSEMENT; INDEMNIFICATION

          Section 3.01   CONDITIONS PRECEDENT TO ISSUANCE OF THE NOTE POLICY.  
Financial Security agrees to issue the Note Policy subject to satisfaction of 
the conditions set forth below.

                                      35

<PAGE>

          (a)       The obligation of Financial Security to issue the Note
Policy is subject to the following having occurred or being true (as the case
may be):  (i) Financial Security shall have received evidence satisfactory to it
that the Seller shall have assigned, conveyed and transferred, or caused to be
assigned, conveyed and transferred, the Initial Receivables to the Trust, (ii)
the Seller shall have created a valid security interest in, and Lien on, the
Receivables in favor of the Trust, (iii) the Trust shall have created a valid
security interest in, and Lien on, the Indenture Property in favor of the
Indenture Collateral Agent on behalf of the Indenture Trustee (on behalf of the 
Noteholders) and Financial Security (iv) the initial Premium shall have been
paid in accordance with Section 3.02 hereof, (v) the representations and
warranties of the Trust, the Seller and of Arcadia Financial and the Servicer
set forth or incorporated by reference in this Agreement shall be true and
correct on and as of the Closing Date, and (vi) each Transaction Document shall
be in full force and effect and no Default thereunder shall have occurred and 
be continuing.

          (b)       The obligation of Financial Security to issue the Note
Policy is further subject to the condition precedent that Financial Security
shall have received on the Closing Date, or, in its sole and absolute
discretion, received the opportunity to review prior to and on the Closing Date,
the following, each dated the Closing Date and in full force and effect on such
date, except as otherwise provided herein, in form and substance satisfactory to
Financial Security and its counsel:

              (i)        a certificate of an Authorized Officer of each of the
      Seller and Arcadia Financial stating that nothing has come to the 
      attention of such entity to indicate that the Registration Statement or 
      the Prospectus, on the date the Registration Statement became effective,
      contained an untrue statement of a material fact or omitted to state a
      material fact required to be stated therein or necessary to make the
      statements therein not misleading, or that the Prospectus on any date on
      which it was forwarded to the Underwriter for use in connection with the
      offering of the Notes contained, or on the Closing Date contains, any
      untrue statement of a material fact or omits to state a material fact
      necessary in order to make the statements made therein, in light of the
      circumstances under which they were made, not misleading;

              (ii)       copies, certified to be true copies by an Authorized
      Officer of the Owner Trustee, of (i) the resolutions of the board of
      directors of the Owner Trustee authorizing the execution, delivery and
      performance by the Owner Trustee of this Agreement and each other
      Transaction Document to which the Owner Trustee is a party and all
      transactions and documents contemplated hereby and thereby, and of all
      other documents evidencing any other necessary action of the Owner 
      Trustee (which certification shall state that such resolutions have not 
      been modified, are in full force and effect and constitute the only 
      resolutions adopted by the Owner Trustee's board of directors or any 
      committee thereof with respect thereto and (ii) the Certificate of Trust,
      certified by the Secretary of State or other appropriate official of the 
      State of Delaware;

              (iii)      copies, certified to be true copies by an Authorized
      Officer of the Seller, of (i) the resolutions of the board of directors 
      of the Seller authorizing the execution, delivery and performance of this
      Agreement and each other Transaction

                                      36

<PAGE>

      Document to which the Seller is a party and all transactions and 
      documents contemplated hereby and thereby, and of all other documents
      evidencing any other necessary action of the Seller (which certification
      shall state that such resolutions have not been modified, are in full 
      force and effect and constitute the only resolutions adopted by the 
      Seller's board of directors or any committee thereof with respect 
      thereto), (ii) the corporate charter of the Seller and (iii) the by-laws,
      as amended, of the Seller; 

              (iv)       copies, certified to be true copies by an Authorized
      Officer of Arcadia Financial, of (i) the resolutions of the board of
      directors of Arcadia Financial authorizing the execution, delivery and
      performance of this Agreement and each other Transaction Document to 
      which Arcadia Financial is a party and all other transactions and 
      documents contemplated hereby and thereby, and of all documents 
      evidencing any other necessary action of Arcadia Financial (which 
      certification shall state that such resolutions have not been modified,
      are in full force and effect and constitute the only resolutions adopted
      by Arcadia Financial's board of directors or any committee thereof with
      respect thereto), (ii) the corporate charter of Arcadia Financial and 
      (iii) the by-laws, as amended, of Arcadia Financial;

              (v)        a certificate of an Authorized Officer of the Owner
      Trustee stating that (i) all consents, licenses and approvals necessary 
      for the Owner Trustee to execute, deliver and perform this Agreement, the
      other Transaction Documents to which the Owner Trustee is a party and all 
      other documents and instruments on the part of the Owner Trustee to be 
      delivered pursuant hereto or thereto have been obtained, and (ii) all 
      such consents, licenses and approvals are in full force and effect, the 
      Owner Trustee has not received any notice of any proceeding for the 
      revocation of any such license, charter, permit or approval, and, to the 
      Owner Trustee's knowledge, there is no threatened action or proceeding or
      any basis therefor;

              (vi)       a certificate of an Authorized Officer of the Seller
      stating that (i) all consents, licenses and approvals necessary for the
      Seller to execute, deliver and perform this Agreement, the other
      Transaction Documents to which the Seller is a party and all other
      documents and instruments on the part of the Seller to be delivered
      pursuant hereto or thereto have been obtained, and (ii) all such consents,
      licenses and approvals are in full force and effect, the Seller has not
      received any notice of any proceeding for the revocation of any such
      license, charter, permit or approval, and, to the Seller's knowledge, 
      there is no threatened action or proceeding or any basis therefor;

              (vii)      a certificate of an Authorized Officer of Arcadia
      Financial stating that (i) all consents, licenses and approvals necessary
      for Arcadia Financial to execute, deliver and perform this Agreement, the
      other Transaction Documents to which Arcadia Financial is a party and all
      other documents and instruments on the part of Arcadia Financial to be
      delivered pursuant hereto or thereto have been obtained, and (ii) all such
      consents, licenses and approvals are in full force and effect, Arcadia
      Financial has not received any notice of any proceeding for the revocation
      of any such license, charter, permit or approval, and, to Arcadia
      Financial's knowledge, there is no threatened action or proceeding or any
      basis therefor;

                                      37

<PAGE>

            (viii)       a certificate of an Authorized Officer of the Owner
     Trustee certifying (i) the names and true signatures of the officers of the
     Owner Trustee executing and delivering this Agreement, the other
     Transaction Documents to which the Owner Trustee is a party and the other
     documents to be executed and delivered by the Owner Trustee hereunder and
     thereunder, (ii) that approval by the Owner Trustee's equity holders of the
     execution and delivery of this Agreement, the other Transaction Documents
     and all other such documents to be executed and delivered, by the Owner
     Trustee hereunder, has been obtained or is not required, and (iii) that no
     action for the dissolution of the Owner Trustee has been adopted or
     contemplated and that no such proceedings have been commenced or are
     contemplated;

              (ix)       a certificate of an Authorized Officer of the Seller
     certifying (i) the names and true signatures of the officers of the Seller
     executing and delivering this Agreement, the other Transaction Documents to
     which the Seller is a party and the other documents to be executed and
     delivered by the Seller hereunder and thereunder, (ii) that approval by the
     Seller's stockholder of the execution and delivery of this Agreement, the
     other Transaction Documents and all other such documents to be executed and
     delivered, by the Seller hereunder, has been obtained or is not required,
     and (iii) that no resolution for the dissolution of the Seller has been
     adopted or contemplated and that no such proceedings have been commenced or
     are contemplated;

               (x)       a certificate of an Authorized Officer of Arcadia
     Financial certifying (i) the names and true signatures of the officers of
     Arcadia Financial executing and delivering this Agreement, the other
     Transaction Documents to which Arcadia Financial is a party and the other
     documents to be executed and delivered by Arcadia Financial hereunder and
     thereunder, (ii) that approval by Arcadia Financial's stockholders of the
     execution and delivery of this Agreement, the other Transaction Documents
     and all other such documents to be executed and delivered, by Arcadia
     Financial hereunder, has been obtained or is not required, and (iii) that
     no resolution for the dissolution of Arcadia Financial has been adopted or
     contemplated and that no such proceedings have been commenced or are
     contemplated;

              (xi)       a certificate of an Authorized Officer of the Trust to
     the effect that (x) the representations and warranties of the Trust set
     forth or incorporated by reference in this Agreement are true and correct
     on and as of the Closing Date and (y) confirming that the conditions
     precedent set forth herein with respect to the Trust are satisfied;

             (xii)       a certificate of an Authorized Officer of the Seller to
     the effect that (x) the representations and warranties of the Seller set
     forth or incorporated by reference in this Agreement are true and correct
     on and as of the Closing Date and (y) confirming that the conditions
     precedent set forth herein with respect to the Seller are satisfied;

            (xiii)       a certificate of an Authorized Officer of Arcadia
     Financial to the effect that (x) the representations and warranties of
     Arcadia Financial set forth or incorporated by reference in this Agreement
     are true and correct on and as of the Closing

                                      38

<PAGE>

     Date, and (y) confirming that the conditions precedent set forth herein 
     with respect to Arcadia Financial are satisfied;

             (xiv)       favorable opinions of counsel and special Texas counsel
     to the Seller and Arcadia Financial in form and substance satisfactory to
     Financial Security and its counsel;

              (xv)       a favorable opinion of counsel to each of the Trust,
     the Owner Trustee, the Indenture Trustee and the Collateral Agent and the
     Indenture Collateral Agent, in form and substance satisfactory to Financial
     Security and its counsel;

             (xvi)       evidence that amounts due and payable Financial
     Security under Section 3.02 of this Agreement have been paid or that
     acceptable provisions therefor have been made;

            (xvii)       a fully executed copy of each of the Transaction
     Documents;

           (xviii)       evidence that all actions necessary or, in the opinion
     of Financial Security, desirable to perfect and protect the interests
     transferred by the Sale and Servicing Agreement, the liens and security
     interests created with respect to the Spread Account, the Liens and
     security interest created in favor of the Indenture Collateral Agent with
     respect to the Indenture Property pursuant to the Indenture, including,
     without limitation, the filing of any financing statements required by
     Financial Security or its counsel, have been taken;

             (xix)       a certificate or opinion of Independent Accountants
     addressed to Financial Security in form and substance satisfactory to
     Financial Security;

              (xx)       evidence that the Seller shall have deposited, or
     caused to have been deposited, the deposits required under the Sale and
     Servicing Agreement and the Spread Account Agreement, and any other
     deposits required to be made on the Closing Date under the Transaction
     Documents to which the Seller is a party; and

             (xxi)       such other documents, instruments, approvals (and, if
     requested by Financial Security, certified duplicates of executed copies
     thereof) or opinions as Financial Security may reasonably request.

          (c)    ISSUANCE OF RATINGS.  Financial Security shall have received
confirmation that the risk secured by the Note Policy constitutes an investment
grade risk by Standard and Poor's Corporation ("S&P") and an insurable risk by
Moody's Investors Service, Inc. ("Moody's") and that the Class A-1 Notes, when
issued, will be rated "A-1+" by S&P and "P-1" by Moody's, and that the Class A-2
Notes, the Class A-3 Notes, the Class A-4 Notes and the Class A-5 Notes, when
issued, will be rated "AAA" by S&P and "Aaa" by Moody's.

                                     39

<PAGE>

          (d)    DELIVERY OF DOCUMENTS.  Financial Security shall have 
received evidence satisfactory to it that delivery has been made to the Trust 
or to a Custodian of the Receivable Files required to be so delivered 
pursuant to Section 2.2 of the Sale and Servicing Agreement.

          (e)    NO DEFAULT.  No Default or Event of Default shall have 
occurred and be continuing.

          (f)    NO LITIGATION, ETC.  No suit, action or other proceeding,
investigation, or injunction or final judgment relating thereto, shall be
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with any of the Transaction Documents or the consummation of the
Transaction.

          (g)    LEGALITY.  No statute, rule, regulation or order shall have
been enacted, entered or deemed applicable by any government or governmental or
administrative agency or court which would make the transactions contemplated by
any of the Transaction Documents illegal or otherwise prevent the consummation
thereof.

          (h)    SATISFACTION OF CONDITIONS OF UNDERWRITING AGREEMENT.  All
conditions in the Underwriting Agreement to the Underwriter's obligation to
purchase the Notes (other than the issuance of the Note Policy) shall have been
concurrently satisfied. 

          Section 3.02. PAYMENT OF FEES AND PREMIUM.

          (a)    LEGAL FEES.  On the Closing Date, Arcadia Financial shall
pay or cause to be paid legal fees and disbursements incurred by Financial
Security in connection with the issuance of the Note Policy up to an amount not
to exceed $20,000.00, plus disbursements.
a.   
          (b)    RATING AGENCY FEES.  The initial fees of S&P and Moody's
with respect to the Notes and the Transaction shall be paid by Arcadia Financial
in full on the Closing Date.  All periodic and subsequent fees of S&P or Moody's
with respect to, and directly allocable to, the Notes shall be for the account
of, shall be billed to, and shall be paid by Arcadia Financial.  The fees for
any other rating agency shall be paid by the party requesting such other
agency's rating, unless such other agency is a substitute for S&P or Moody's in
the event that S&P or Moody's is no longer rating the Notes, in which case the
cost for such agency shall be paid by Arcadia Financial.

          (c)    AUDITORS' FEES.  In the event that Financial Security's
auditors are required to provide information or any consent in connection with
the Registration Statement fees therefor shall be paid by Arcadia Financial. 
Any additional fees incurred by Financial Security after the Closing Date in
respect of any additional consents shall be paid by Arcadia Financial on demand.

          (d)    PREMIUM.  In consideration of the issuance by Financial
Security of the Note Policy, Arcadia Financial shall pay Financial Security the
Premium and Premium Supplement, if any, as and when due in accordance with the
terms of the Premium Letter.  The Premium and Premium Supplement, if any, paid
hereunder or under the Sale and Servicing 

                                     40

<PAGE>

Agreement shall be nonrefundable without regard to whether Financial Security 
makes any payment under the Note Policy or any other circumstances relating 
to the Notes or provision being made for payment of the Notes prior to 
maturity.  Although the Premium is fully earned by Financial Security as of 
the Closing Date, the Premium shall be payable in periodic installments as 
provided in the Premium Letter.  Anything herein or in any of the Transaction 
Documents notwithstanding, upon the occurrence of an Event of Default, the 
entire outstanding balance of further installments of the Premium and Premium 
Supplement shall be immediately due and payable.  All payments of Premium and 
Premium Supplement, if any, shall be made by wire transfer to an account 
designated from time to time by Financial Security by written notice to the 
Seller and Arcadia Financial.

          Section 3.03. REIMBURSEMENT AND ADDITIONAL PAYMENT OBLIGATION.  
Each of Arcadia Financial and the Trust agrees to pay to Financial Security 
as follows:

          (a)    a sum equal to the total of all amounts paid by Financial
Security under the Note Policy;

          (b)    any and all charges, fees, costs and expenses which 
Financial Security may reasonably pay or incur, including, but not limited 
to, attorneys' and accountants' fees and expenses, in connection with (i) any 
accounts established to facilitate payments under the Note Policy to the 
extent Financial Security has not been immediately reimbursed on the date 
that any amount is paid by Financial Security under the Note Policy, (ii) the 
administration, enforcement, defense or preservation of any rights in respect 
of any of the Transaction Documents, including defending, monitoring or 
participating in any litigation, proceeding (including any insolvency or 
bankruptcy proceeding in respect of any Transaction participant or any 
Affiliate thereof), restructuring or engaging in any protective measures or 
monitoring activities relating to any of the Transaction Documents, any party 
to any of the Transaction Documents or the Transaction, (iii) the foreclosure 
against, sale or other disposition of any collateral securing any obligations 
under any of the Transaction Documents or otherwise in the discretion of 
Financial Security, or pursuit of any other remedies under any of the 
Transaction Documents, to the extent such costs and expenses are not 
recovered from such foreclosure, sale or other disposition  (iv) any 
amendment, waiver or other action with respect to, or related to, any 
Transaction Document whether or not executed or completed, (v) preparation of 
bound volumes of the Transaction Documents, (vi) any review or investigation 
made by Financial Security in those circumstances where its approval or 
consent is sought under any of the Transaction Documents; (vii) any federal, 
state or local tax (other than taxes payable in respect of the gross income 
of Financial Security) or other governmental charge imposed in connection 
with the issuance of the Note Policy; and (viii) Financial Security reserves 
the right to charge a reasonable fee as a condition to executing any 
amendment, waiver or consent proposed in respect of any of the Transaction 
Documents (for the purpose of this paragraph (b), costs and expenses shall 
include a reasonable allocation of compensation and overhead attributable to 
time of employees of Financial Security spent in connection with the actions 
described in the foregoing clauses (ii) and (iii));

          (c)    interest on any and all amounts described in this Section 
3.03 from the date payable to or paid by Financial Security until payment 
thereof in full, and interest on any and 

                                     41

<PAGE>

all amounts described in Section 3.02, in each case payable to Financial 
Security at the Late Payment Rate per annum; and

          (d)    any payments made by Financial Security on behalf of, or 
advanced to, the Seller, Arcadia Financial, the Indenture Trustee, the Owner 
Trustee or the Trust including, without limitation, any amounts payable by 
Arcadia Financial in its capacity as Servicer or by the Trust, in respect of 
the Notes and any other amounts owed pursuant to any Transaction Documents; 
and any payments made by Financial Security as, or in lieu of, any servicing, 
administration, management, trustee, custodial, collateral agency or 
administrative fees payable, in the sole discretion of Financial Security to 
third parties in connection with the Transaction.

          All such amounts are to be immediately due and payable without 
demand. Financial Security shall notify Arcadia Financial of amounts due 
hereunder.

          Section 3.04. CERTAIN OBLIGATIONS NOT RECOURSE TO ARCADIA 
FINANCIAL; RECOURSE TO TRUST PROPERTY.

          (a)    Notwithstanding any provision of Section 3.03 to the 
contrary, the payment obligations provided in Section 3.03(a), b(iii) and (d) 
(to the extent of advances to the Trust or to the Indenture Trustee in 
respect of payments on the Notes), in each case, to the extent that such 
payment obligations do not arise from any failure or default in the 
performance by Arcadia Financial or the Seller of any of its obligations 
under the Transaction Documents, and any interest on the foregoing in 
accordance with Section 3.03(c), shall not be recourse to Arcadia Financial, 
but shall be payable in the manner and in accordance with priorities provided 
in the Sale and Servicing Agreement.

          (b)    Financial Security covenants and agrees that it shall not be 
entitled to any payment from the Trust Property with respect to amounts owed 
under this Agreement other than as set forth in Section 4.6 and Section 9.1 
of the Sale and Servicing Agreement and Section 5.06 of the Indenture.

          Section 3.05. INDEMNIFICATION.

          (a)    INDEMNIFICATION BY ARCADIA FINANCIAL.  In addition to any 
and all rights of reimbursement, indemnification, subrogation and any other 
rights pursuant hereto or under law or in equity, Arcadia Financial agrees to 
pay, and to protect, indemnify and save harmless, Financial Security and its 
officers, directors, shareholders, employees, agents and each Person, if any, 
who controls Financial Security within the meaning of either Section 15 of 
the Securities Act or Section 20 of the Exchange Act from and against any and 
all claims, losses, liabilities (including penalties), actions, suits, 
judgments, demands, damages, costs or expenses (including, without 
limitation, fees and expenses of attorneys, consultants and auditors and 
reasonable costs of investigations) of any nature arising out of or relating 
to the Transaction by reason of:

                 (i)    any statement, omission or action (other than of or by
     Financial Security) in connection with the offering, issuance, sale or
     delivery of the Notes;

                                     42

<PAGE>

                (ii)    the negligence, bad faith, willful misconduct,
     misfeasance, malfeasance or theft committed by any director, officer,
     employee or agent of the Trust, the Seller or Arcadia Financial in
     connection with the Transaction;

               (iii)    the violation by the Trust, the Seller or Arcadia
     Financial of any federal, state or foreign law, rule or regulation, or any
     judgment, order or decree applicable to it;

                (iv)    the breach by the Trust, the Seller or Arcadia
     Financial of any representation, warranty or covenant under any of the
     Transaction Documents or the occurrence, in respect of the Trust, the
     Seller or Arcadia Financial, under any of the Transaction Documents of any
     event of default or any event which, with the giving of notice or the lapse
     of time or both, would constitute any event of default; or

                 (v)    any untrue statement or alleged untrue statement of a
     material fact contained in the Registration Statements or the Prospectus or
     in any amendment or supplement thereto or any omission or alleged omission
     to state therein a material fact required to be stated therein or necessary
     to make the statements therein not misleading, except insofar as such
     claims arise out of or are based upon any untrue statement or omission
     (A) included in the Registration Statements or the Prospectus and furnished
     by Financial Security in writing expressly for use therein (all such
     information so furnished being referred to herein as "Financial Security
     Information"), it being understood that the Financial Security Information
     is limited to the information included under the caption "Financial
     Security Assurance Inc.," and the financial statements of Financial
     Security included in the Registration Statements or the Prospectus or (B)
     included in the information set forth under the caption "Underwriting" in
     the Prospectus.

          (b)    CONDUCT OF ACTIONS OR PROCEEDINGS.  If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against Financial Security, any officer, director, shareholder,
employee or agent of Financial Security or any Person controlling Financial
Security (individually, an "Indemnified Party" and, collectively, the
"Indemnified Parties") in respect of which indemnity may be sought from Arcadia
Financial hereunder, Financial Security shall promptly notify Arcadia Financial
in writing, and Arcadia Financial shall assume the defense thereof, including
the employment of counsel satisfactory to Financial Security and the payment of 
all expenses.  The Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof at the
expense of the Indemnified Party; PROVIDED, HOWEVER, that the fees and expenses
of such separate counsel shall be at the expense of Arcadia Financial if (i)
Arcadia Financial has agreed to pay such fees and expenses, (ii) Arcadia
Financial shall have failed to assume the defense of such action or proceeding
and employ counsel satisfactory to Financial Security in any such action or
proceeding or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the Indemnified Party and the
Trust, the Seller or Arcadia Financial, and the Indemnified Party shall have
been advised by counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the Trust,
the Seller or Arcadia Financial (in which case, if the Indemnified Party
notifies Arcadia Financial in writing that it elects to employ separate counsel
at the expense of Arcadia Financial, Arcadia 

                                     43

<PAGE>

Financial shall not have the right to assume the defense of such action or 
proceeding on behalf of such Indemnified Party, it being understood, however, 
that Arcadia Financial shall not, in connection with any one such action or 
proceeding or separate but substantially similar or related actions or 
proceedings in the same jurisdiction arising out of the same general 
allegations or circumstances, be liable for the reasonable fees and expenses 
of more than one separate firm of attorneys at any time for the Indemnified 
Parties, which firm shall be designated in writing by Financial Security).  
Arcadia Financial shall not be liable for any settlement of any such action 
or proceeding effected without its written consent to the extent that any 
such settlement shall be prejudicial to it, but, if settled with its written 
consent, or if there be a final judgment for the plaintiff in any such action 
or proceeding with respect to which Arcadia Financial shall have received 
notice in accordance with this subsection (c) Arcadia Financial agrees to 
indemnify and hold the Indemnified Parties harmless from and against any loss 
or liability by reason of such settlement or judgment.

          (c)    CONTRIBUTION.  To provide for just and equitable 
contribution if the indemnification provided by Arcadia Financial is 
determined to be unavailable for any Indemnified Party (other than due to 
application of this Section), Arcadia Financial shall contribute to the 
losses incurred by the Indemnified Party on the basis of the relative fault 
of Arcadia Financial, on the one hand, and the Indemnified Party, on the 
other hand.

          Section 3.06. PAYMENT PROCEDURE.  In the event of the incurrence by 
Financial Security of any cost or expense or any payment by Financial 
Security for which it is entitled to be reimbursed or indemnified as provided 
above Arcadia Financial agrees to accept the voucher or other evidence of 
payment as prima facie evidence of the propriety thereof and the liability 
therefor to Financial Security.  All payments to be made to Financial 
Security under this Agreement shall be made to Financial Security in lawful 
currency of the United States of America in immediately available funds to 
the account number provided in the Premium Letter before 1:00 p.m. (New York, 
New York time) on the date when due or as Financial Security shall otherwise 
direct by written notice to Arcadia Financial.  In the event that the date of 
any payment to Financial Security or the expiration of any time period 
hereunder occurs on a day which is not a Business Day, then such payment or 
expiration of time period shall be made or occur on the next succeeding 
Business Day with the same force and effect as if such payment was made or 
time period expired on the scheduled date of payment or expiration date.  
Payments to be made to Financial Security under this Agreement shall bear 
interest at the Late Payment Rate from the date when due to the date paid.

          Section 3.07. SUBROGATION.  Subject only to the priority of payment 
provisions of the Sale and Servicing Agreement, each of the Trust, the 
Indenture Trustee, the Seller and Arcadia Financial acknowledges that, to the 
extent of any payment made by Financial Security pursuant to the Note Policy, 
Financial Security is to be fully subrogated to the extent of such payment 
and any additional interest due on any late payment, to the rights of the 
Noteholders to any moneys paid or payable in respect of the Notes under the 
Transaction Documents or otherwise. Each of the Trust, the Indenture Trustee, 
the Seller and Arcadia Financial agrees to such subrogation and, further, 
agrees to execute such instruments and to take such actions as, in the sole 
judgment of Financial Security, are necessary to evidence such subrogation 
and to 

                                     44

<PAGE>

perfect the rights of Financial Security to receive any such moneys paid or 
payable in respect of the Notes under the Transaction Documents or otherwise.


                                 ARTICLE IV

                        FURTHER AGREEMENTS; MISCELLANEOUS

          Section 4.01. EFFECTIVE DATE; TERM OF AGREEMENT.  This Agreement 
shall take effect on the Closing Date and shall remain in effect until the 
later of (a) such time as Financial Security is no longer subject to a claim 
under the Note Policy and the Note Policy shall have been surrendered to 
Financial Security for cancellation and (b) all amounts payable to Financial 
Security and the Noteholders under the Transaction Documents and under the 
Notes have been paid in full; PROVIDED, HOWEVER, that the provisions of 
Sections 3.02, 3.03, 3.04, 3.05, 3.06 and 4.03 hereof shall survive any 
termination of this Agreement.

          Section 4.02. FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS.  To 
the extent permitted by law, each of the Trust, the Seller and Arcadia 
Financial agree that it will, from time to time, execute, acknowledge and 
deliver, or cause to be executed, acknowledged and delivered, such 
supplements hereto and such further instruments as Financial Security may 
request and as may be required in Financial Security's judgment to effectuate 
the intention of or facilitate the performance of this Agreement.

          Section 4.03. OBLIGATIONS ABSOLUTE.

          (a)    The obligations of the Trust, the Seller and Arcadia 
Financial hereunder shall be absolute and unconditional, and shall be paid or 
performed strictly in accordance with this Agreement under all circumstances 
irrespective of:

               (i)     any lack of validity or enforceability of, or any
     amendment or other modifications of, or waiver with respect to any of the
     Transaction Documents, the Notes or the Note Policy; PROVIDED, that
     Financial Security shall not have consented to any such amendment,
     modification or waiver;

              (ii)     any exchange or release of any other obligations
     hereunder;

             (iii)     the existence of any claim, setoff, defense, reduction,
     abatement or other right which the Trust, the Seller or Arcadia Financial
     may have at any time against Financial Security or any other Person;

              (iv)     any document presented in connection with the Note
     Policy  proving to be forged, fraudulent, invalid or insufficient in any
     respect or any statement therein being untrue or inaccurate in any respect;

               (v)     any payment by Financial Security under the Note Policy
     against presentation of a certificate or other document which does not
     strictly comply with terms of the Note Policy;

                                     45

<PAGE>

              (vi)     any failure of the Seller or the Trust to receive the
     proceeds from the Sale of the Notes;

             (vii)     any breach by the Trust, the Seller or Arcadia
     Financial of any representation, warranty or covenant contained in any of
     the Transaction Documents; or

            (viii)     any other circumstances, other than payment in full,
     which might otherwise constitute a defense available to, or discharge of,
     the Trust, the Seller or Arcadia Financial in respect of any Transaction
     Document.

          (b)    The Trust, the Seller and Arcadia Financial and any and all
others who are now or may become liable for all or part of the obligations of
any of them under this Agreement agree to be bound by this Agreement and (i) to
the extent permitted by law, waive and renounce any and all redemption and
exemption rights and the benefit of all valuation and appraisement privileges
against the indebtedness and obligations evidenced by any Transaction Document
or by any extension or renewal thereof; (ii) waive presentment and demand for
payment, notices of nonpayment and of dishonor, protest of dishonor and notice
of protest; (iii) waive all notices in connection with the delivery and
acceptance hereof and all other notices in connection with the performance,
default or enforcement of any payment hereunder except as required by the
Transaction Documents other than this Agreement; (iv) waive all rights of
abatement, diminution, postponement or deduction, or to any defense other than
payment, or to any right of setoff or recoupment arising out of any breach under
any of the Transaction Documents, by any party thereto or any beneficiary
thereof, or out of any obligation at any time owing to the Trust, the Seller or 
Arcadia Financial; (v) agree that its liabilities hereunder shall, except as
otherwise expressly provided in this Section 4.03, be unconditional and without
regard to any setoff, counterclaim or the liability of any other Person for the
payment hereof; (vi) agree that any consent, waiver or forbearance hereunder
with respect to an event shall operate only for such event and not for any
subsequent event; (vii) consent to any and all extensions of time that may be
granted by Financial Security with respect to any payment hereunder or other
provisions hereof and to the release of any security at any time given for any
payment hereunder, or any part thereof, with or without substitution, and to the
release of any Person or entity liable for any such payment; and (viii) consent
to the addition of any and all other makers, endorsers, guarantors and other
obligors for any payment hereunder, and to the acceptance of any and all other
security for any payment hereunder, and agree that the addition of any such
obligors or security shall not affect the liability of the parties hereto for
any payment hereunder.

          (c)    Nothing herein shall be construed as prohibiting the Trust,
Seller or Arcadia Financial from pursuing any rights or remedies it may have
against any other Person in a separate legal proceeding.

          Section 4.04. ASSIGNMENTS; REINSURANCE; THIRD-PARTY RIGHTS.

          (a)    This Agreement shall be a continuing obligation of the 
parties hereto and shall be binding upon and inure to the benefit of the 
parties hereto and their respective successors and permitted assigns.  
Neither the Trust, the Seller nor Arcadia Financial may assign its rights 
under this Agreement, or delegate any of its duties hereunder, without the 
prior written 

                                     46

<PAGE>

consent of Financial Security.  Any assignment made in violation of this 
Agreement shall be null and void.

          (b)    Financial Security shall have the right to give 
participations in its rights under this Agreement and to enter into contracts 
of reinsurance with respect to the Note Policy upon such terms and conditions 
as Financial Security may in its discretion determine; PROVIDED, HOWEVER, 
that no such participation or reinsurance agreement or arrangement shall 
relieve Financial Security of any of its obligations hereunder or under the 
Note Policy.

          (c)    In addition, Financial Security shall be entitled to assign 
or pledge to any bank or other lender providing liquidity or credit with 
respect to the Transaction or the obligations of Financial Security in 
connection therewith any rights of Financial Security under the Transaction 
Documents or with respect to any real or personal property or other interests 
pledged to Financial Security, or in which Financial Security has a security 
interest, in connection with the Transaction.

          (d)    Except as provided herein with respect to participants and 
reinsurers, nothing in this Agreement shall confer any right, remedy or 
claim, express or implied, upon any Person, including, particularly, any  
Noteholder (except to the extent provided herein and without limitation of 
their rights to receive payments with respect to the Trust Property, 
including without limitation payments under the Note Policy), other than 
Financial Security, against the Trust, the Seller, Arcadia Financial or the 
Servicer, and all the terms, covenants, conditions, promises and agreements 
contained herein shall be for the sole and exclusive benefit of the parties 
hereto and their successors and permitted assigns.  Neither the Trustee, the 
Owner Trustee nor any Noteholder shall have any right to payment from any 
premiums paid or payable hereunder or from any other amounts paid by the 
Seller or Arcadia Financial pursuant to Section 3.02, 3.03 or 3.04 hereof 
(without limitation to the rights of the Noteholders to receive payments with 
respect to the Trust Property, as provided in the Indenture and the Trust 
Agreement).

          Section 4.05. LIABILITY OF FINANCIAL SECURITY.  Neither Financial 
Security nor any of its officers, directors or employees shall be liable or 
responsible for: (a) the use which may be made of the Note Policy by the 
Owner Trustee or the Indenture Trustee or for any acts or omissions of the 
Owner Trustee or the Indenture Trustee in connection therewith; or (b) the 
validity, sufficiency, accuracy or genuineness of documents delivered to 
Financial Security (or its Fiscal Agent) in connection with any claim under 
the Note Policy, or of any signatures thereon, even if such documents or 
signatures should in fact prove to be in any or all respects invalid, 
insufficient, fraudulent or forged (unless Financial Security shall have 
actual knowledge thereof).  In furtherance and not in limitation of the 
foregoing, Financial Security (or its Fiscal Agent) may accept documents that 
appear on their face to be in order, without responsibility for further 
investigation.


                                   ARTICLE V

                           EVENTS OF DEFAULT; REMEDIES



                                     47
<PAGE>

          Section 5.01. EVENTS OF DEFAULT.  The occurrence of any of the 
following events shall constitute an Event of Default hereunder:

          (a)       any demand for payment shall be made under the Note Policy;

          (b)       any representation or warranty made by the Trust, the
Seller, Arcadia Financial or the Servicer under any of the Related Documents, or
in any certificate or report furnished under any of the Related Documents, shall
prove to be untrue or incorrect in any material respect;

          (c)       (i) the Trust, the Seller, Arcadia Financial or the Servicer
shall fail to pay when due any amount payable by the Seller, Arcadia Financial
or the Servicer under any of the Related Documents (other than payments of
principal and interest on the Notes); (ii) the Trust, the Seller, Arcadia
Financial or the Servicer shall have asserted that any of the Transaction
Documents to which it is a party is not valid and binding on the parties
thereto; or (iii) any court, governmental authority or agency having
jurisdiction over any of the parties to any of the Transaction Documents or
property thereof shall find or rule that any material provision of any of the
Transaction Documents is not valid and binding on the parties thereto.

          (d)       the Trust, the Seller, Arcadia Financial or the Servicer
shall fail to perform or observe any other covenant or agreement contained in
any of the Related Documents (except for the obligations described under clause
(b) or (c) above) and such failure shall continue for a period of 30 days after
written notice given to the Trust, the Seller, Arcadia Financial or the Servicer
(as applicable); PROVIDED that, if such failure shall be of a nature that it
cannot be cured within 30 days, such failure shall not constitute an Event of
Default hereunder if within such 30-day period such party shall have given
notice to Financial Security of corrective action it proposes to take, which
corrective action is agreed in writing by Financial Security to be satisfactory
and such party shall thereafter pursue such corrective action diligently until
such default is cured;

          (e)       there shall have occurred an "Event of Default" as specified
in Section 6.01(i) or 6.01(ii) of the Senior Note Indenture or the unpaid
principal amount of, premium, if any, and accrued and unpaid interest on the
Securities (as defined in the Senior Note Indenture) shall have, upon the
declaration of the holders of the Securities, as specified in Section 6.02 of
the Senior Note Indenture, become immediately due and payable;

          (f)       the Trust shall adopt a voluntary plan of liquidation or 
shall fail to pay its debts generally as they come due, or shall admit in 
writing its inability to pay its debts generally, or shall make a general 
assignment for the benefit of creditors, or shall institute any proceeding 
seeking to adjudicate the Trust insolvent or seeking a liquidation, or shall 
take advantage of any insolvency act, or shall commence a case or other 
proceeding naming the Trust as debtor under the United States Bankruptcy Code 
or similar law, domestic or foreign, or a case or other proceeding shall be 
commenced against the Trust under the United States Bankruptcy Code or 
similar law, domestic or foreign, or any proceeding shall be instituted 
against the Trust seeking liquidation of its assets and the Trust shall fail 
to take appropriate action resulting in the withdrawal or dismissal of such 
proceeding within 30 days or there shall be appointed or the 

                                 48

<PAGE>

Trust consent to, or acquiesce in, the appointment of a receiver, liquidator, 
conservator, trustee or similar official in respect of the Trust or the whole 
or any substantial part of its properties or assets, or the Trust shall take 
any corporate action in furtherance of any of the foregoing or the Trust 
terminates pursuant to Section 9.1 of the Trust Agreement;

          (g)       the Trust becomes taxable as an association (or publicly
traded partnership) taxable as a corporation for federal or state income tax
purposes;

          (h)       on any Distribution Date, the sum of Available Funds with 
respect to such Distribution Date and the amounts available in the Series 
1997-B Spread Account (prior to any deposits into such Spread Account from 
Spread Accounts related to any other Series) and the amount that may be 
withdrawn from the Reserve Account pursuant to Section 5.1 of the Sale and 
Servicing Agreement is less than the sum of the amounts payable on such 
Distribution Date pursuant to clauses (i) through (viii) of Section 4.6 of 
the Sale and Servicing Agreement;

          (i)      any default in the observance or performance of any 
covenant or agreement of the Trust made in the Indenture (other than a 
default in the payment of the interest or principal on any Note when due) or 
any representation or warranty of the Trust made in the Indenture or in any 
certificate or other writing delivered pursuant thereto or in connection 
therewith proving to have been incorrect in any material respect as of the 
time when the same shall have been made, and such default shall continue or 
not be cured, or the circumstance or condition in respect of which such 
misrepresentation or warranty was incorrect shall not have been eliminated or 
otherwise cured, for a period of 30 days after there shall have been given, 
by registered or certified mail, to the Trust and the Indenture Trustee by 
Financial Security, a written notice specifying such default or incorrect 
representation or warranty and requiring it to be remedied;

          (j)      the Average Delinquency Ratio with respect to any
Determination Date shall have been equal to or greater than 7.66%.

          (k)      with respect to any Determination Date, the Cumulative
Default Rate shall be equal to or greater than the percentage set forth in
Column A of Schedule I attached hereto corresponding to such Determination Date;


          (l)      with respect to any Determination Date, the Cumulative Net
Loss Rate shall be equal to or greater than the percentage set forth in Column B
of Schedule I attached hereto corresponding to such Determination Date; 

          (m)      the occurrence of an Event of Servicing Termination under
the Sale and Servicing Agreement; or 

          (n)      the occurrence of an "Event of Default" under and as defined
in any Insurance and Indemnity Agreement among Financial Security, Arcadia
Financial, the Seller and any other parties thereto, which "Event of Default" is
not defined as a "Portfolio Performance Event of Default" in such Insurance and
Indemnity Agreement.

                                      49

<PAGE>

          Section 5.02. REMEDIES; WAIVERS.

          (a)      Upon the occurrence of an Event of Default, Financial
Security may exercise any one or more of the rights and remedies set forth
below:

            (i)          declare the Premium Supplement to be immediately due
     and payable, and the same shall thereupon be immediately due and payable,
     whether or not Financial Security shall have declared an "Event of Default"
     or shall have exercised, or be entitled to exercise, any other rights or
     remedies hereunder;

            (ii)         exercise any rights and remedies available under the
     Transaction Documents in its own capacity or in its capacity as the Person
     entitled to exercise the rights of Controlling Party under the Transaction
     Documents; or

            (iii)        take whatever action at law or in equity as may appear
     necessary or desirable in its judgment to enforce performance of any
     obligation of the Trust, the Seller or Arcadia Financial under the
     Transaction Documents; PROVIDED, HOWEVER, that Financial Security shall not
     be entitled hereunder to file any petition with respect to the Trust or the
     Trust Property under any bankruptcy or insolvency law.

          (b)      Unless otherwise expressly provided, no remedy herein
conferred upon or reserved is intended to be exclusive of any other available
remedy, but each remedy shall be cumulative and shall be in addition to other
remedies given under the Transaction Documents or existing at law or in equity. 
No delay or failure to exercise any right or power accruing under any
Transaction Document upon the occurrence of any Event of Default or otherwise
shall impair any such right or power or shall be construed to be a waiver
thereof, but any such right and power may be exercised from time to time and as
often as may be deemed expedient.  In order to entitle Financial Security to
exercise any remedy reserved to Financial Security in this Article, it shall not
be necessary to give any notice.

          (c)      If any proceeding has been commenced to enforce any right or
remedy under this Agreement, and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to Financial
Security, then and in every such case the parties hereto shall, subject to any
determination in such proceeding, be restored to their respective former
positions hereunder, and, thereafter, all rights and remedies of Financial
Security shall continue as though no such proceeding had been instituted.

          (d)      Financial Security shall have the right, to be exercised in
its complete discretion, to waive any covenant, Default or Event of Default by a
writing setting forth the terms, conditions and extent of such waiver signed by
Financial Security and delivered to the Seller and Arcadia Financial.  Any such
waiver may only be effected in writing duly executed by Financial Security, and
no other course of conduct shall constitute a waiver of any provision hereof. 
Unless such writing expressly provides to the contrary, any waiver so granted
shall extend only to the specific event or occurrence so waived and not to any
other similar event or occurrence which occurs subsequent to the date of such
waiver.

                                      50

<PAGE>

                                   ARTICLE VI

                                  MISCELLANEOUS

          Section 6.01. AMENDMENTS, ETC.  This Agreement may be amended, 
modified or terminated only by written instrument or written instruments signed 
by the parties hereto.  No act or course of dealing shall be deemed to 
constitute an amendment, modification or termination hereof.

          Section 6.02. NOTICES.  All demands, notices and other 
communications to be given hereunder shall be in writing (except as otherwise 
specifically provided herein) and shall be mailed by registered mail or 
overnight carrier, personally delivered or telecopied (with confirmation by 
registered mail) to the recipient as follows:

          (a)  To Financial Security:

               Financial Security Assurance Inc.
               350 Park Avenue
               New York, New York  10022
               Attention:  Surveillance Department
               Confirmation:   (212) 826-0100
               Telecopy Nos.:  (212) 339-3518
                               (212) 339-3529

               (in each case in which notice or other communication to Financial
               Security refers to an Event of Default, a claim on the Note
               Policy or with respect to which failure on the part of Financial
               Security to respond shall be deemed to constitute consent or
               acceptance, then a copy of such notice or other communication
               should also be sent to the attention of each of the General
               Counsel and the Head--Financial Guaranty Group and shall be
               marked to indicate "URGENT MATERIAL ENCLOSED.")

          (b)  To the Seller:

               Arcadia Receivables Finance Corp.
               7825 Washington Avenue South, Suite 410
               Minneapolis, Minnesota  55439-2435
               Telephone:   (612) 942-9888
               Telecopier:  (612) 942-6730

          (c)  To Arcadia Financial:

               Arcadia Financial Ltd.
               7825 Washington Avenue South
               Minneapolis, Minnesota  55439-2435
               Telephone:   (612) 942-9880

                                      51

<PAGE>

               Telecopier:  (612) 942-6730

          (d)  To the Trust:
 
               Arcadia Automobile Receivables Trust, 1997-B
               c/o Mellon Bank (DE), National Association,
                 as Owner Trustee
               919 North Market Street, Second Floor
               Wilmington, Delaware 19801
               Attention:  Robert H. Bell
               Telephone:  (302) 421-2283
               Telecopier: (302) 421-2323

               with a copy to:

               Mellon Bank, National Association
               Two Mellon Bank Center
               Room 325
               Pittsburgh, Pennsylvania  15259
               Attention:  Kent Christman
               Telephone:  (412) 234-5737
               Telecopier: (412) 234-9196

          A party may specify an additional or different address or addresses by
writing mailed or delivered to the other party as aforesaid.  All such notices
and other communications shall be effective upon receipt.

          Section 6.03. SEVERABILITY.  In the event that any provision of 
this Agreement shall be held invalid or unenforceable by any court of 
competent jurisdiction, the parties hereto agree that such holding shall not 
invalidate or render unenforceable any other provision hereof.  The parties 
hereto further agree that the holding by any court of competent jurisdiction 
that any remedy pursued by any party hereto is unavailable or unenforceable 
shall not affect in any way the ability of such party to pursue any other 
remedy available to it.

          Section 6.04. GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY 
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

          Section 6.05. CONSENT TO JURISDICTION.

          (a)       TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE
PARTIES THERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE
STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK, AND ANY APPELLATE
COURT FROM ANY THEREOF, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND
TO OR IN 

                                        52

<PAGE>

CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION OR
FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD OR DETERMINED IN SUCH NEW YORK STATE COURT OR
IN SUCH FEDERAL COURT.  THE PARTIES HERETO AGREE THAT A FINAL JUDGMENT IN ANY
SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. 
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HERETO HEREBY WAIVE AND
AGREE NOT TO  ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THE RELATED DOCUMENTS OR THE SUBJECT MATTER THEREOF MAY NOT BE
LITIGATED IN OR BY SUCH COURTS.

          (b)       To the extent permitted by applicable law, the parties
hereto shall not seek and hereby waive the right to any review of the judgment
of any such court by any court of any other nation or jurisdiction which may be
called upon to grant an enforcement of such judgment.

          (c)       Arcadia Financial and the Seller hereby irrevocably appoints
and designates CT Corporation System, whose address is 1633 Broadway, New York,
New York 10019, as its true and lawful attorney and duly authorized agent for
acceptance of service of legal process.  The Seller and Arcadia Financial agrees
that service of such process upon such Person shall constitute personal service
of such process upon it.

          (d)       Nothing contained in the Agreement shall limit or affect
Financial Security's right to serve process in any other manner permitted by law
or to start legal proceedings relating to any of the Transaction Documents
against the Seller or Arcadia Financial or its property in the courts of any
jurisdiction.

          Section 6.06. CONSENT OF FINANCIAL SECURITY.  In the event that 
Financial Security's consent is required under any of the Transaction 
Documents, the determination whether to grant or withhold such consent shall 
be made by Financial Security in its sole discretion without any implied duty 
towards any other Person, except as otherwise expressly provided therein.

          Section 6.07. COUNTERPARTS.  This Agreement may be executed in 
counterparts by the parties hereto, and all such counterparts shall 
constitute one and the same instrument.

          Section 6.08. HEADINGS.  The headings of articles and sections and 
the table of contents contained in this Agreement are provided for 
convenience only.  They form no part of this Agreement and shall not affect 
its construction or interpretation.  Unless otherwise indicated, 

                                    53

<PAGE>

all references to articles and sections in this Agreement refer to the 
corresponding articles and sections of this Agreement. 

          Section 6.09. TRIAL BY JURY WAIVED.  EACH PARTY HERETO HEREBY 
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY 
IN RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR 
IN CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION.  EACH 
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY 
PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN 
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) 
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION DOCUMENTS 
TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THIS WAIVER.

          Section 6.10. LIMITED LIABILITY.  No recourse under any Transaction 
Document shall be had against, and no personal liability shall attach to, any 
officer, employee, director, affiliate or shareholder of any party hereto, as 
such, by the enforcement of any assessment or by any legal or equitable 
proceeding, by virtue of any statute or otherwise in respect of any of the 
Transaction Documents, the Notes or the Note Policy, it being expressly 
agreed and understood that each Transaction Document is solely a corporate 
obligation of each party hereto, and that any and all personal liability, 
either at common law or in equity, or by statute or constitution, of every 
such officer, employee, director, affiliate or shareholder for breaches by 
any party hereto of any obligations under any Transaction Document is hereby 
expressly waived as a condition of and in consideration for the execution and 
delivery of this Agreement.

          Section 6.11. LIMITED LIABILITY OF MELLON BANK (DE), NATIONAL 
ASSOCIATION.  It is expressly understood and agreed by the parties hereto 
that (a) this Agreement is executed and delivered by Mellon Bank (DE), 
National Association, not individually or personally but solely as Owner 
Trustee on behalf of the Trust, (b) each of the representations, undertakings 
and agreements herein made on the part of the Trust is made and intended not 
as personal representations, undertakings and agreements by Mellon Bank (DE), 
National Association, but are made and intended for the purpose of binding 
only the Trust Estate, (c) nothing herein contained shall be construed as 
creating any liability on Mellon Bank (DE), National Association, 
individually or personally, to perform any covenant of the Trust either 
expressed or implied contained herein, all such liability, if any, being 
expressly waived by the parties hereto and by any person claiming by, through 
or under such parties and (d) under no circumstances shall Mellon Bank (DE), 
National Association be personally liable for the payment of any indebtedness 
or expenses of the Trust or be liable for the breach or failure of any 
obligation, representation, warranty or covenant made or undertaken by the 
Trust under this Agreement.

          Section 6.12. ENTIRE AGREEMENT.  This Agreement and the Note Policy 
set forth the entire agreement between the parties with respect to the 
subject matter thereof, and this Agreement supersedes and replaces any 
agreement or understanding that may have existed between the parties prior to 
the date hereof in respect of such subject matter.

                                       54

<PAGE>

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Insurance and Indemnity Agreement, all as of the day and year
first above written.

                              FINANCIAL SECURITY ASSURANCE INC.

                              By:
                                 ---------------------------------------------
                                 Authorized Officer

                              ARCADIA AUTOMOBILE RECEIVABLES
                                TRUST, 1997-B

                              By:  Mellon Bank (DE), National Association,
                                   not in its individual capacity, but solely in
                                   its capacity as Owner Trustee under the Trust
                                   Agreement

                                   By:
                                      ----------------------------------------
                                      E.D. Renn
                                      Vice President

                              ARCADIA FINANCIAL LTD.

                              By:
                                 ---------------------------------------------
                                 John A. Witham
                                 Executive Vice President and 
                                   Chief Financial Officer

                              ARCADIA RECEIVABLES FINANCE CORP.

                              By:
                                 ---------------------------------------------
                                 John A. Witham
                                 Senior Vice President and 
                                   Chief Financial Officer

                                        56

<PAGE>

                                                                      SCHEDULE I

Determination Date*   Cumulative Default Rate     Cumulative Net Loss Rate
  (month)                   (Column A)                    (Column B)

  0 to 3                      3.74%                          1.90%
  3 to 6                      7.17%                          3.45%
  6 to 9                     10.07%                          4.76%
  9 to 12                    12.48%                          5.66%
 12 to 15                    13.64%                          6.19%
 15 to 18                    15.21%                          6.68%
 18 to 21                    16.63%                          7.05%
 21 to 24                    17.68%                          7.35%
 24 to 27                    18.63%                          7.58%
 27 to 30                    19.44%                          7.80%
 30 to 33                    20.06%                          7.95%
 33 to 36                    20.52%                          8.10%
 36 to 39                    20.94%                          8.21%
 39 to 42                    21.18%                          8.33%
 42 to 45                    21.41%                          8.44%
 45 to 48                    21.60%                          8.50%
 48 to 51                    21.71%                          8.55%
 51 to 54                    21.81%                          8.60%
 54 to 57                    21.85%                          8.65%
 57 to 60                    21.89%                          8.68%
 60 to 63                    21.92%                          8.70%
 63 to 66                    21.94%                          8.72%
 66 to 69                    21.96%                          8.74%
 69 to 72                    21.99%                          8.76%




--------------------------
*    Such Determination Date occurring after the designated calendar months
succeeding the Series 1997-B Closing Date appearing first in the column below,
and prior to or during the designated calendar months succeeding the Series
1997-B Distribution Date appearing second in the column below.